Consumption-Wealth Comovement of the Wrong Sign / James J. Choi, David Laibson, Brigitte C. Madrian, Andrew Metrick.

Format:

Book

Author/Creator:

Choi, James J.

Contributor:

National Bureau of Economic Research.

Laibson, David.

Madrian, Brigitte C.

Metrick, Andrew.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10454.

NBER working paper series no. w10454

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

Economic theory predicts that an unexpected wealth windfall should increase consumption shortly after the windfall is received. We test this prediction using administrative records on over 40,000 401(k) accounts. Contrary to theory, we estimate a negative short-run marginal propensity to consume out of idiosyncratic 401(k) capital gains shocks. These results cannot be interpreted as standard intertemporal substitution, since the idiosyncratic returns that we study do not predict future returns. Instead, our findings imply that many investors are influenced by a positive feedback effect, through which higher recent returns encourage higher short-run saving. Like any other animal, 401(k) participants appear to increase behaviors that have been associated with high rewards in the past.

Notes:

Print version record

April 2004.