Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/85908
Authors: 
Siegmann, Arjen H.
Year of Publication: 
2001
Series/Report no.: 
Tinbergen Institute Discussion Paper 01-079/4
Abstract: 
Most empirical studies assume only monotonic preferences for households. Behavioral research however providessubstantial evidence that preferences for wealth are measured relative to a reference point. In this paper weintroduce and solve a two-period consumption and savings model for a loss-averse agent who measures utilityfrom consumption relative to a benchmark level. The solution is given as a parametric decision rule with oneunknown parameter that depends on the distribution of the return on saving. We find non-linearity in the fractionof wealth saved, where the specific saving pattern depends on the sign of the real return on savings. The amount of saving is nondecreasing in initial wealth and the riskiness of the return distribution.
Subjects: 
Consumption and savings
behavioral value function
loss aversion
JEL: 
D1
D8
D9
E2
Document Type: 
Working Paper

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