Temptation and Self-Control: Some Evidence and Applications

Kevin Huang (), Zheng Liu and Qi Zhu

No 2013-23, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: This paper studies the empirical relevance of temptation and self-control using household-level data from the Consumer Expenditure Survey. We construct an infinite-horizon consumption-savings model that allows, but does not require, temptation and self-control in preferences. In the presence of temptation, a wealth-consumption ratio, in addition to consumption growth, becomes a determinant of the asset-pricing kernel, and the importance of this additional pricing factor depends on the strength of temptation. To identify the presence of temptation, we exploit an implication of the theory that a more tempted individual should be more likely to hold commitment assets such as IRA or 401(k) accounts. Our estimation provides empirical support for temptation preferences. Based on our estimates, we explore some quantitative implications of this class of preferences for capital accumulation in a neoclassical growth model and the welfare cost of the business cycle

Keywords: Consumption (Economics); Consumer behavior (search for similar items in EconPapers)
Pages: 40 pages
Date: 2013-08-27
New Economics Papers: this item is included in nep-cbe, nep-dge and nep-evo
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Temptation and Self‐Control: Some Evidence and Applications (2015)
Working Paper: Temptation and Self-Control: Some Evidence and Applications (2007)
Working Paper: Temptation and self-control: some evidence and applications (2006)
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2013-23

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DOI: 10.24148/wp2013-23

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