Tesis doctoral de Magdalena Erdem
The main goal of this ph.D. Dissertation is to analyze broad aspects of intertemporal consumption choice with rule of thumb approach. the problem is very relevant, since the consumer is a foundation of the economy with consumption expenditure being the largest component of gdp. Therefore the consumption-income relation is one of the crucial aspects in the macro-policy analy- sis. That relation has been analyzed extensively and resulted in numerous theories: absolute income hypothesis by keynes (1936), permanent income hypothesis by friedman (1957) and life cycle hypothesis by modigliani (1960s). First approach to describe that relation following postulate of rational expectations was done by hall (1978) and in¿uenced the future work on consumption. However the con- frontation of the theories with empirical studies resulted in several puzzles, among them excess sensitivity and excess smoothness of consumption. Resent stream of the literature has assumed the coexistence of rule of thumb consumers with ratio- nal consumers in an attempt to bring the theories closes to observed facts. The models based on «classifers systems» of holland (1975) were built to analyze sta- tic repeated problem, arthur (1991, 1994) or intertemporal problems, lettau and uhlig (1999) and solved using stochastic approximation methods. Going further, as in the case of the rational consumer, basci and orhan (2000) provided a type of bellman value function for the class of models described by lettau and uhlig. our approach is similar to the one presented by these authors, we attempt to characterize the broader context of the intertemporal choice of rule of thumb consumers. When building the models we take into account recent fnding of «buffer-stock models» and generalize the description of the environment and learn- ing processes. We also propose similar to basci and orhan, value function, but for a more general problem with di¿erent rule choice mechanism. another aspect that got recent attention is the type of information infuencing intertemporal consumption choice. Wide body of literature shows that economic decisions are taken not only using private information, but are influenced by choices of others, just to mention, ellison and fudenberg (1993), brock and durlauf (2001), binder and pesaran (2001), manski (2004). We take that observation into account and construct the model of intertemporal consumption choice with rule of thumb consumers that are allowed to use their private but also public information on the consumption choices of their neighbors. First we want to check if rule of thumb behavior may be a result of limited information. Second, on the contrary to wide body of the literature on social interactions, we assume the neoclassical utility and check the possibility of interaction between consumers in such situation. in chapter 1 titled «on the learning foundation of rule-of-thumb consumers» we analyze the problem of individual intertemporal consumption choice following the rule of thumb approach and elements of learning. We employ the method propose by lettau and uhlig (1999). In order to qualify their «good state bias» where suboptimal rules are chosen due to favorable conditions, we introduce an example with richer set of competing rules that are consistent with recent findings of «bu¿er-stock models». We show that «good states bias» still holds, but only when suboptimal rules lead to overconsumption with respect to optimal one. In new settings we allow for randomization between the rules and show that the consumer can learn to behave optimally irrespective on initial beliefs about performance of the rules. in chapter 2 titled «behavioral value function – an alternative specification of learning in dynamic environment» (joint work with mahmut erdem) we propose a new solution method to the intertemporal consumption choice with rules of thumb. the latter are usually solved by employing complex stochastic approximation meth- ods, see lettau and uhlig (1999). We, on the contrary, show, using the stochastic cake eating problem as an example, that the solution can be established by repre- senting the problem using similar to bellman value function speci¿cation. Taking into account characteristics of the problem, where consumers instead of optimizing follow certain rules of thumb while choosing their consumption, we construct, what we call, behavioral value function. We show analytically that the solution to the described problem using the stochastic approximation methods coincides with the one obtained using constructed behavioral value function. We illustrate it with simulated example and show additionally that the consumers that apply rule of thumb approach tend to overconsume with respect to their optimal consumption. in chapter 3 titled «social interactions and learning in consumption decisions» we turn our attention to the possibility that the individuals take decisions using not only private, but also publicly available information on the decisions of their neighbors. The aim of the paper is to check if rule of thumb consumers will learn from others even if their utility is modelled in a neoclassical way and depend only on the private consumption. We examine the intertemporal consumption decisions in a multi-agent consumption choice model with rules of thumb. It is assumed that some of the rules of thumb depend on choices of the neighbors. Despite the assumption on the utility form, the rule of thumb consumers will take consumption choices of their neighbors into account. We show that there is still possibility for the emergence of «social consumption effects» where satisfaction with private consumption depends on consumption decisions of the neighbors. this dissertation presents basic, but broad analysis of the rule of thumb ap- proach applied to intertemporal consumption choices. We have shown what are the consumption patterns that arise from that approach. We have shown that rule of thumb consumes tend to overconsume with respect to optimal consumption, which could be introductory attempt to explain consumption puzzles. We have shown also that rule of thumb consumers may follow others decisions and their personal satisfaction with consumption depends on others decisions even if the utility is modelled in a neoclassical way. Without assuming any form of interac- tion, namely conformism, altruism or jealousy (see the recent literature, binder, pesaran (1998, 2001)) we have shown that the consumers prefer to follow their richer neighbors which confirms «keeping up with the joneses» observation. on the technical side, we have proposed plausible modifications to lettau and uhlig method that allows rule of thumb consumers to identify correctly optimal consumption. We have also constructed new solution method for the intertemporal problems with rules of thumb that coincides with the solution obtained by stochas- tic approximation methods. Our representation of the problem with rules of thumb – behavioral value function, resembles bellman value function and is a relatively easy tool that provides the solution to complex problem. there are several extension to the problem presented in that dissertation. First of all, drawing from the chapter 1 it would be very interesting to test empirically the existence of rule of thumb consumers and identify the types of applied rules. second, we could test the existence of social effects in the societies. Since the satisfaction with own consumption depends on others choices we could test what are the connections between inequality measures, relative position of consumers in the society and their consumption and savings choices. In the end we would like to describe the relation between inequality measures and savings ratios using empirical data. Other line of research would be to use the methods presented in that dissertation to the complex problem from the fnancial markets field, for example where different currency trading strategies could be represented as testable rules of thumb.
Datos académicos de la tesis doctoral «Essays on bounded rationality«
- Título de la tesis: Essays on bounded rationality
- Autor: Magdalena Erdem
- Universidad: Autónoma de barcelona
- Fecha de lectura de la tesis: 25/06/2010
Dirección y tribunal
- Director de la tesis
- Juan Carlos Conesa Roca
- Tribunal
- Presidente del tribunal: francesc Obiols homs
- xavier Raurich puigdevall (vocal)
- (vocal)
- (vocal)