| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5058790 | Economics Letters | 2015 | 5 Pages |
â¢We examine a life-cycle consumption model that features the choice of when to retire.â¢We assess the impact of hyperbolic and exponential discounting on savings outcomes.â¢Hyperbolic discounting leads to less debt compared to exponential discounting.â¢Hyperbolic discounting leads to earlier saving compared to exponential discounting.â¢The presence of retirement choice is responsible for differences in savings outcomes.
Hyperbolic discounting with naiveté is widely believed to provide a better explanation than exponential discounting of why people borrow so much and why they wait so long to save for retirement. We reach a different set of conclusions. We show that if financial planning is enriched to include the choice of when to retire, then naive hyperbolic discounters may borrow far less and start saving for retirement significantly earlier than exponential discounters.
