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Risk Averse, Time Optimizing Behavior of Households: Comparison with German Microcensus Data
Journal of Contextual Economics – Schmollers Jahrbuch, Vol. 111 (1991), Iss. 2 : pp. 169–185
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Gehrels, Franz
Abstract
This paper uses a discrete finite-time, risk-averse, expected-utility model of households to explain their lifecycle behavior. Its theoretical predictions, namely, early high saving despite expectations of rising income, and later rising consumption, as expectations are realized, are consistent with German microcensus data for the year 1983. Important is the expectation of rising productivity and real income per head for the economy as a whole. Adjusting both income and consumption for family size had a strong smoothing effect over time on both variables. Saving remains strongly positive for all age groups, consistently with risk aversion.