Reference-Dependent Consumption Plans
Botond Köszegi and Matthew Rabin
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| Article Citation |
Köszegi, Botond, and Matthew Rabin. 2009. "Reference-Dependent Consumption Plans." American Economic Review, 99(3): 909–36.
DOI:10.1257/aer.99.3.909
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| Abstract |
We develop a rational dynamic model in which people are loss averse over
changes in beliefs about present and future consumption. Because changes
in wealth are news about future consumption, preferences over money are
reference-dependent. If news resonates more when about imminent consumption
than when about future consumption, a decision maker might (to generate
pleasant surprises) overconsume early relative to the optimal committed plan,
increase immediate consumption following surprise wealth increases, and
delay decreasing consumption following surprise losses. Since higher wealth
mitigates the effect of bad news, people exhibit an unambiguous first-order
precautionary-savings motive. (JEL D14, D81, D83, D91)
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| Article Full-Text Access |
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| Additional Materials |
Online Appendix
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| Authors |
Köszegi, Botond (U CA, Berkeley)
Rabin, Matthew (U CA, Berkeley)
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| JEL Classifications |
D14: Personal Finance
D81: Criteria for Decision-Making under Risk and Uncertainty
D83: Search; Learning; Information and Knowledge; Communication; Belief
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving
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