Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/72016
Authors: 
Allen, Todd W.
Carroll, Christopher D.
Year of Publication: 
2001
Series/Report no.: 
Working Papers, The Johns Hopkins University, Department of Economics 444
Abstract: 
The standard approach to modelling consumption/saving problems is to assume that the decisionmaker is solving a dynamic stochastic optimization problem However under realistic descriptions of utility and uncertainty the optimal consumption/saving decision is so difficult that only recently economists have managed to find solutions using numerical methods that require previously infeasible amounts of computation Yet empirical evidence suggests that household behavior conforms fairly well with the prescriptions of the optimal solution raising the question of how average households can solve problems that economists until recently could not This paper examines whether consumers might be able to find a reasonably good ’rule-of-thumb?approximation to optimal behavior by trial-and-error methods as Friedman (1953) proposed long ago We find that such individual learning methods can reliably identify reasonably good rules of thumb only if the consumer is able to spend absurdly large amounts of time searching for a good rule
Subjects: 
learning
consumption
saving
uncertainty
buffer-stocksa ving
JEL: 
C6
D1
D8
D9
E2
Document Type: 
Working Paper

Files in This Item:
File
Size
400.51 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.