Time inconsistency and retirement choice

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Abstract

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.

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Findley, T. S., & Caliendo, F. N. (2015). Time inconsistency and retirement choice. Economics Letters, 129, 4–8. https://doi.org/10.1016/j.econlet.2015.01.027

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