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- Intertemporal_consumption abstract "Economic theories of intertemporal consumption seek to explain people's preferences in relation to consumption and saving over the course of their life. The earliest work on the subject was by Irving Fisher and Roy Harrod who described 'hump saving', hypothesizing that savings would be highest in the middle years of a person's life as they saved for retirement.In the 1950s, more well-defined models built on discounted utility theory and approached the question of inter-temporal consumption as a lifetime income optimization problem. Solving this problem mathematically, assuming that individuals are rational and have access to complete markets, Modigliani & Brumberg (1954), Albert Ando, and Milton Friedman (1957) developed what became known as the life-cycle model. See Intertemporal choice:Modigliani's Life Cycle Income Hypothesis for details.The life-cycle model of consumption suggests that consumption is based on average lifetime income instead income at any given age. First, young people borrow to consume more than their income, next, as their income rises through the years, their consumption rises slowly and they begin to save more. Lastly, during their retirement these individuals live off of their savings. Furthermore this theory implies that consumption is smoothed out relative to a person's income which is the reason economists set consumption proportional to potential income rather than actual income.Attempts to test the life-cycle model against real world data have met with mixed success. In a review of the literature, Courant, Gramlich and Laitner (1984) note \"but for all its elegance and rationality, the life-cycle model has not tested out very well.\" The main discrepancies between predicted and actual behaviour is that people drastically 'underconsume' early and late in their lifetime by failing to borrow against future earnings and not saving enough to adequately finance retirement incomes respectively. People also seem to 'overconsume' during their highest earning years, the elderly do not consume from their assets as would be expected (particularly from their household equity) and also treat windfall gains in a manner inconsistent with the life-cycle model. Specific alterations to the theory have been proposed to help it accommodate the data; a bequest motive, capital market imperfections such as liquidity constraints, a changing individual utility function over time or a particular form of expectation as to future income.Behavioural economists have proposed an alternate description of intertemporal consumption, the behavioural life cycle hypothesis. They propose that people mentally divide their assets into non-fungible mental accounts - current income, current assets (savings) and future income. The marginal propensity to consume (MPC) out of each of these accounts is different. Drawing upon empirical studies of consumption, superannuation and windfall gains they hypothesize that the MPC is close to one out of current income, close to zero for future income and somewhere in between with respect to current assets. These differing MPCs explain why people 'overconsume' during their highest earning years, why increasing superannuation contributions does not cause current savings to be reduced (as the life-cycle model implies) and why small windfall gains (which are coded as current income) are consumed at a high rate but a higher proportion of larger gains is saved.".
- Intertemporal_consumption wikiPageID "1045866".
- Intertemporal_consumption wikiPageLength "4511".
- Intertemporal_consumption wikiPageOutDegree "26".
- Intertemporal_consumption wikiPageRevisionID "663316122".
- Intertemporal_consumption wikiPageWikiLink Albert_Ando.
- Intertemporal_consumption wikiPageWikiLink Behavioral_economics.
- Intertemporal_consumption wikiPageWikiLink Behavioural_life_cycle.
- Intertemporal_consumption wikiPageWikiLink Bequest_motive.
- Intertemporal_consumption wikiPageWikiLink Category:Intertemporal_economics.
- Intertemporal_consumption wikiPageWikiLink Consumption_(economics).
- Intertemporal_consumption wikiPageWikiLink Current_asset.
- Intertemporal_consumption wikiPageWikiLink Discounted_utility.
- Intertemporal_consumption wikiPageWikiLink Dissaving.
- Intertemporal_consumption wikiPageWikiLink Franco_Modigliani.
- Intertemporal_consumption wikiPageWikiLink Intertemporal_choice.
- Intertemporal_consumption wikiPageWikiLink Irving_Fisher.
- Intertemporal_consumption wikiPageWikiLink Liquidity_constraint.
- Intertemporal_consumption wikiPageWikiLink Marginal_propensity_to_consume.
- Intertemporal_consumption wikiPageWikiLink Mental_accounting.
- Intertemporal_consumption wikiPageWikiLink Milton_Friedman.
- Intertemporal_consumption wikiPageWikiLink Pension.
- Intertemporal_consumption wikiPageWikiLink Permanent_income_hypothesis.
- Intertemporal_consumption wikiPageWikiLink Preference.
- Intertemporal_consumption wikiPageWikiLink Roy_Harrod.
- Intertemporal_consumption wikiPageWikiLink Saving.
- Intertemporal_consumption wikiPageWikiLink Temporal_discounting.
- Intertemporal_consumption wikiPageWikiLink Utility.
- Intertemporal_consumption wikiPageWikiLink Wealth_elasticity_of_demand.
- Intertemporal_consumption wikiPageWikiLinkText "Intertemporal consumption".
- Intertemporal_consumption wikiPageWikiLinkText "Life-Cycle-Permanent-Income Hypothesis".
- Intertemporal_consumption wikiPageWikiLinkText "Windfall".
- Intertemporal_consumption wikiPageWikiLinkText "intertemporal consumption".
- Intertemporal_consumption wikiPageWikiLinkText "life-cycle hypothesis of saving".
- Intertemporal_consumption wikiPageWikiLinkText "life-cycle model".
- Intertemporal_consumption wikiPageWikiLinkText "overlapping-generations models".
- Intertemporal_consumption wikiPageUsesTemplate Template:Consumption.
- Intertemporal_consumption subject Category:Intertemporal_economics.
- Intertemporal_consumption type Microeconomic.
- Intertemporal_consumption comment "Economic theories of intertemporal consumption seek to explain people's preferences in relation to consumption and saving over the course of their life.".
- Intertemporal_consumption label "Intertemporal consumption".
- Intertemporal_consumption sameAs Q1806372.
- Intertemporal_consumption sameAs Lebenszyklushypothese.
- Intertemporal_consumption sameAs Komsumsi_antarwaktu.
- Intertemporal_consumption sameAs Ipotesi_del_ciclo_vitale.
- Intertemporal_consumption sameAs Gyvenimo_ciklo_hipotezė.
- Intertemporal_consumption sameAs Hipoteza_cyklu_życia.
- Intertemporal_consumption sameAs m.04178t.
- Intertemporal_consumption sameAs Q1806372.
- Intertemporal_consumption wasDerivedFrom Intertemporal_consumption?oldid=663316122.
- Intertemporal_consumption isPrimaryTopicOf Intertemporal_consumption.