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Estimating temptation and commitment over the life-cycle

Abstract:

This paper estimates the importance of temptation (Gul and Pesendorfer, 2001) for consumption smoothing and asset accumulation in a structural life-cycle model. We use two complementary estimation strategies: ?rst, we estimate the Euler equation of this model; and second we match liquid and illiquid wealth accumulation using the Method of Simulated Moments. We ?nd that the utility cost of temptation is one-quarter of the utility bene?t of consumption. Further, we show that allowing for tempta...

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Publication status:
Published

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Publisher:
University of Oxford
Series:
Department of Economics Discussion Paper Series
Publication date:
2020-07-22
Paper number:
796
Keywords:
Pubs id:
1143475
Local pid:
pubs:1143475
Deposit date:
2020-12-14

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