Learning and Visceral Temptation in Dynamic Saving Experiments^*

TLDR

The study tests whether bounded rationality or a preference for immediacy explains apparent undersaving in life‑cycle models. Two separate experiments were conducted, one probing bounded rationality and the other examining immediate beverage consumption as a proxy for immediacy preferences. The bounded‑rationality experiment showed initial undersaving that converged to optimal savings over four cycles, whereas the immediacy experiment revealed overspending consistent with quasi‑hyperbolic discounting and β estimates of 0.6–0.7, aligning with empirical saving data.

Abstract

This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially—providing evidence for bounded rationality—but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated β = 0.6–0.7).