Self-Control and Saving for Retirement

This paper builds the first calibrated life-cycle simulation model of “hyperbolic” consumers – whose discount rates decline with horizon, setting up a conflict between a patient long-run self and an impatient short-run self – and compares it with the standard “exponential” consumer model used to evaluate tax-deferred saving vehicles such as 401(k) plans. In a one-asset economy the two types’ calibrated consumption and wealth profiles look “nearly indistinguishable,” but the hyperbolic model also generates two signatures that do show up in US survey data: a higher incidence of binding liquidity constraints, and the anomalously low “missing” precautionary-saving coefficient that Dynan (1993) found empirically. When a second, partially illiquid asset – a stylized 401(k)-style defined-contribution (DC) plan with an early-withdrawal penalty – is added, hyperbolic consumers respond much more strongly than exponential consumers: with the authors’ preferred risk-aversion calibration, DC plans raise the steady-state net national saving rate by 61-102 percent for exponential households versus 81-134 percent for hyperbolic households (depending on the match rate and penalty), and the welfare gain from gaining access to the DC plan is far larger for hyperbolic households, because they value the plan’s illiquidity as a commitment device on top of the same tax benefit that exponential households value alone. These gaps shrink sharply for both types of households once risk aversion is raised from 1 to 3, so the model’s verdict on how much DC plans raise national saving and welfare turns on a risk-aversion parameter the authors say is “not know[n]” with confidence.

The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation

A note on provenance. No copy of the Journal of Economic Perspectives article itself could be retrieved (AEA’s own site serves it from behind a Cloudflare bot challenge that blocked repeated scripted and in-browser attempts). This page instead rests on the underlying technical working paper by the same five authors, Angeletos, Laibson, Repetto, Tobacman, and Weinberg, “Hyperbolic Discounting, Wealth Accumulation, and Consumption” (Centro de Economia Aplicada, Universidad de Chile, Serie Economia No. 90, July 2000). The working paper’s own abstract is word-for-word the abstract Crossref and OpenAlex deposit for the published JEP article, and the two share all five authors and the same model, calibration, and headline results, so the working paper is almost certainly the technical basis the JEP “Perspectives” piece condenses – but the JEP text itself may re-sequence, retitle, or add exposition not present here. Treat section/page references below as pointing to the 2000 working paper, not to the 2001 JEP pagination (pp. 47-68).

Andrea Repetto | Macro Paper Warehouse

Self-Control and Saving for Retirement

The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation