Author | Conference | Journal | Organization | Year | DOI
Look for results that meet for the following criteria:
Academic
Publications
Optimal irrational behavior

Optimal irrational behavior,10.1016/j.jebo.2010.11.002,Journal of Economic Behavior & Organization,James Feigenbaum,Frank N. Caliendo,Emin Gahramanov

Edit
Optimal irrational behavior   (Citations: 2)
BibTex | RIS | RefWorks Download
Contrary to the usual presumption that welfare in markets is maximized if consumers behave rationally, we show in a two-period overlapping generations model that there always exists an irrational consumption rule that can weakly improve upon the lifecycle/permanent-income rule in general equilibrium. The market-clearing mechanism introduces a pecuniary externality that individual rational households do not consider when making decisions but a publically shared rule of thumb can exploit. For typical calibrations, the improvement of the welfare of irrational households is robust to the introduction of rational agents. Although transitions to the optimal irrational steady state are not Pareto improving, transitions do exist that will improve a Pareto social welfare function with a sufficiently small generational discount rate. Generalizing to a more realistic lifecycle model, we find that the Save More Tomorrow™ (SMarT) Plan, if properly parameterized, can confer higher lifetime utility than the permanent-income rule.
Journal: Journal of Economic Behavior & Organization - J ECON BEHAV ORGAN , vol. 77, no. 3, pp. 285-303, 2011
Cumulative Annual
View Publication
The following links allow you to view full publications. These links are maintained by other sources not affiliated with Microsoft Academic Search.
Sort by:

Citations (2)

Share this on