Self-Control and Saving for Retirement

It is shown that life-cycle consumption and asset accumulation patterns are consistent with a hyperbolic model. At first glance, the life-cycle choices of hyperbolic and exponential consumers are indistinguishable. However, hyperbolic consumers exhibit some special regularities that enable researchers to distinguish them from their exponential counterparts: they are much more likely to encounter liquidity constraints, and they exhibit the anomalous precautionary saving effects documented by Dynan (1993). It is shown that hyperbolic consumers will react much more favorably to defined contribution pension plans than equivalent exponential consumers.