The Relative Size of Windfall Income and the Permanent Income Hypothesis

Keeler, James P.; James, William L.; Abdel‐Ghany, Mohamed

doi:10.2307/1391591

Cited by 12 publications

(10 citation statements)

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“…The use of inheritances and lottery winnings as variation in life-time wealth W i is justified as Friedman (1957; Chapter 3, p. 23) and Keeler et al (1985) argue that windfall gains represent an increase in permanent income, and individuals smooth consumption with the marginal propensity to consume equaling the annuity value of the windfall gain (Meghir, 2004; Jappelli and Pistaferri, 2010). 16 …”

Section: A Theory Of Wealth Health and Unhealthy Consumptionmentioning

confidence: 99%

Wealth and health behavior: Testing the concept of a health cost

Kippersluis

Galama

2014

European Economic Review

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Wealthier individuals engage in healthier behavior. This paper seeks to explain this phenomenon by exploiting both inheritances and lottery winnings to test a theory of health behavior. We distinguish between the direct monetary cost and the indirect health cost (value of health lost) of unhealthy consumption. The health cost increases with wealth and the degree of unhealthiness, leading wealthier individuals to consume more healthy and moderately unhealthy, but fewer severely unhealthy goods. The empirical evidence presented suggests that differences in health costs may indeed partially explain behavioral differences, and ultimately health outcomes, between wealth groups.

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Section: A Theory Of Wealth Health and Unhealthy Consumptionmentioning

confidence: 99%

Wealth and health behavior: Testing the concept of a health cost

Kippersluis

Galama

2014

European Economic Review

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“…That said, whether and how windfalls may increase frivolous spending is still debated, and other theories predict that bonuses are more likely to be saved than regular income. Experimental results on the topic are mixed (79,80). …”

Section: General Behavioral Economics Principlesmentioning

confidence: 99%

Some Observations from Behavioral Economics for Consideration in Promoting Money Management among Those with Substance Use Disorders

Chivers

Higgins

2012

The American Journal of Drug and Alcohol Abuse

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Background Behavioral economics research has revealed systematic biases in decision making that merit consideration in efforts to promote money management skills among those with substance use disorders (SUDs). Objectives The objective of this article was to briefly review the literature on five of those biases (i.e., hyperbolic delay discounting, defaults and preference for the status quo, loss aversion, mental accounting, and failure to account for opportunity cost) that may have particular relevance to the topic of money management. Methods Selected studies are reviewed to illustrate these biases and how they may relate to efforts to promote money management skills among those with substance use disorders. Studies were identified by searching PubMed using the terms “behavioral economics” and “substance use disorders”, reviewing bibliographies of published articles, and discussions with colleagues. Results Only one of these biases (i.e., hyperbolic delay discounting) has been investigated extensively among those with SUDs. Indeed, it has been found to be sufficiently prevalent among those with SUDs to be considered as a potential risk factor for those disorders and certainly merits careful consideration in efforts to improve money management skills in that population. There has been relatively little empirical research reported regarding the other biases among those with SUDs, although they appear to be sufficiently fundamental to human behavior and relevant to the topic of money management (e.g., loss aversion) to also merit consideration. There is precedent of effective leveraging of behavioral economics principles in treatment development for SUDs (e.g., contingency management), including at least one intervention that explicitly focuses on money management (i.e., advisor–teller money management therapy). Conclusions and Scientific Significance The consideration of the systematic biases in human decision making that have been revealed in behavioral economics research has the potential to enhance efforts to devise effective strategies for improving money management skills among those with SUDs.

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“…Some researchers find evidence that the origin of assets does not influence subject behavior in laboratory settings (e.g., Clark, 1998Clark, , 2002Rutström and Williams, 2000;Ball et al, 2001). In contrast, other work provides evidence that asset origin does alter a person's marginal propensity to consume and take risks, with windfall (i.e., unearned) endowments leading to more generous and risky behavior (Keeler et al, 1985;Arkes et al, 1995;Thaler and Johnson, 1990;and Keasey and Moon, 1996). People act more munificently and take more chances when spending "other people's money.…”

Section: Introductionmentioning

confidence: 99%

The impact of endowment heterogeneity and origin on public good contributions: evidence from the lab

Cherry

Kroll

Shogren

2005

Journal of Economic Behavior & Organization

352

210

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Recent experimental research suggests that unpredicted behavior in the lab may result from endowment distribution and origin. We design an experiment to explore the impact of heterogeneous endowments and earned endowments on observed contributions in a linear public good game. Our results suggest that contribution levels were significantly lower when groups had heterogeneous rather than homogeneous endowments, with this finding being independent of the origin of endowment. We did not find, however, that the lack of free-riding in public goods experiments was an artifact of endowment origin. Group members contributed about the same to the public good whether their endowments were earned or not.

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The Relative Size of Windfall Income and the Permanent Income Hypothesis

Cited by 12 publications

References 0 publications

Wealth and health behavior: Testing the concept of a health cost

Wealth and health behavior: Testing the concept of a health cost

Some Observations from Behavioral Economics for Consideration in Promoting Money Management among Those with Substance Use Disorders

The impact of endowment heterogeneity and origin on public good contributions: evidence from the lab

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