Effortful Self-Control, Consumption, and Wealth Accumulation

New York University, New York NY

Investigators

Abstract

Introspection tells us that agents often exert effort to overcome temptation. In addition, such effortful self-control is broadly consistent with the findings of Ameriks, Caplin and Leahy (QJE, forthcoming) that agents who plan and budget tend to save more and accumulate greater wealth. It is important to develop new theoretical models and to enrich the empirical evidence on self-control. There are two related, but independent, parts to the proposal. The first part is empirical. Caplin and Leahy will use a new survey designed and implemented in cooperation with TIAA-CREF to study the role of self- control problems in wealth accumulation and to study the mechanisms that people employ to overcome these problems. Preliminary findings indicate that the measure of self-control developed in this survey is strongly correlated with wealth accumulation and that there appear to be two important types of self-control problems: over-consumption and under-consumption. The next stage is to examine the economic, behavioral and demographic correlates of self-control. Prof. Tom Tyler of the Psychology Department of New York University and Dr. John Ameriks of the TIAA-CREF Institute will be collaborating on this research. The second part of the proposal is theoretical. Caplin and Leahy will develop new models of effortful self-control and investigate the implications for wealth accumulation. A preliminary model indicates that attitudes towards risk affect the incentive to attend to consumption expenditures with important implications for saving behavior. John Ameriks will be collaborating on this research. (1) The Intellectual Merit of the Proposed Activity The project will increase our understanding of consumption and saving behavior. There has been little prior work on effortful self-control and few estimates of the effect of self-control on wealth accumulation. Professors Caplin and Leahy have experience in survey design and in the construction of theoretical models of economic behavior. A previous survey led to one publication the Quarterly Journal of Economics and a submission to the Review of Economics and Statistics. (2) The Broader Impacts Resulting from the Proposed Activity o Results of this research will be disseminated broadly through conference presentations and through submissions to academic journals. o Collaboration with Prof. Tyler will deepen the interactions between the departments of Economics and Psychology at New York University. This should lead to further fruitful interaction between the fields of economics and psychology. o Professors Caplin and Leahy will make every good faith effort consistent with Federal and local law to make the data that is collected during this project available to other researchers.