0
$\begingroup$

https://en.wikipedia.org/wiki/Life-cycle_hypothesis?wprov=sfti1

It seems self-evident to me that nobody on Earth actually does this. Real people are short-sighted, undisciplined, and lack the computational ability to account for all the variables.

Some may attempt to, but will invariably fail, and most people don’t even try and instead live for the short-term. Richard Thaler covers this in his book “Misbehaving: The Making of Behavioral Economics”.

Has even one instance of LCH behavior ever been documented?

| improve this question | |
$\endgroup$
  • 1
    $\begingroup$ Your question seems to be the broader methodological one of "What good is a model that does not describe actual human behavior?" than the one currently in the title ("Has any person ever actually planned his or her consumption according to Modigliani’s LCH?"). That methodological question is in turn a very broad one that economists have debated for many years (indeed centuries) and thus might not be suitable for this site. $\endgroup$ – Kenny LJ Jan 8 '18 at 3:34
  • $\begingroup$ Point taken. I have corrected my question so it doesn’t digress. $\endgroup$ – Dave Jan 8 '18 at 12:35
  • 1
    $\begingroup$ It'd probably be better to not abbreviate "life-cycle hypothesis." Also, the fact that it can be attributed some extent to Modigliani seems less important. $\endgroup$ – jmbejara Jan 10 '18 at 0:06
2
$\begingroup$

The life-cycle hypothesis as a model doesn't need to explain people's behavior perfectly to be of use in understanding the economy or the decisions that individuals make. Recall the old saying that "all models are wrong but some are useful." As a quick example, note that many people do in fact borrow when they are young (e.g., for college, save while their income is relatively high (e.g., a lot of people save for retirement), and dissave when they're older---just as would be predicted by this theory.

| improve this answer | |
$\endgroup$

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.