Life cycle consumption decisions

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Reference no: EM131085098

An article published in an economics journal examines “life cycle consumption decisions,” that is, an individual’s borrowing, spending, saving and investment from childhood through retirement. The data come from subjects who filled out an online questionnaire. Instructions “strongly and repeatedly emphasized” that subjects should do their best to give answers that “would make them the most happy given the situation described.” Each subject received $15 and refreshments for their participation.

a) The authors describe their study as an “experiment . . . in a controlled life-cycle setting.” Discuss on this description, referring as appropriate to concepts from this class such as external validity and salience.

(b) Suggest an alternative way of running an economics experiment on life-cycle consumption. Be specific but brief.

(c) Policy makers are interested in life-cycle consumption in order to predict such things as the effects of temporary or permanent tax cuts. Briefly compare the advantages (for policy analysis) of field evidence versus laboratory evidence on life-cycle consumption.

Reference no: EM131085098

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