Lifecycle Consumption under Different Income Profiles : Experimental Evidence

We report on a series of economic decision-making experiments exploring how individuals make lifecycle consumption and saving plans when they face different income profiles. We find that for every income profile we consider, subjects on average over-consume in the early periods of life and under-consume in later periods of life relative to the conditional optimum and any sudden drop in income reduces their lifetime utility. We conduct a specification search for a model to explain our data and find that a two-type model with one type consuming the conditional optimum and the other type consuming endowments best fits our data