NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

NBER Working Papers by William Samuelson

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Working Papers

July 1989Labor Supply Flexibility and Portfolio Choice
with Zvi Bodie: w3043
This paper develops a model showing that people who have flexibility in choosing how much to work will prefer to invest substantially more of their money in risky assets than if they had no such flexibility. Viewed in this way, labor supply flexibility offers insurance against adverse investment outcomes. The model provides support for the conventional wisdom that the young can tolerate more risk in their investment portfolios than the old. The model has other implications for the study of household financial behavior over the life cycle. It implies that households will take account of the value of labor supply flexibility in deciding how much to invest in their own human capital and when to retire. At the macro level it implies that people will have a labor supply response to shocks in th...

Published: Published as "Labor Supply Flexibility and Portfolio Choice in a Life Cycle Model", JEDC, Vol. 16, nos. 3/4 (1992): 427-450.

March 1987Can People Compute? An Experimental Test of the Life Cycle Consumption Model
with Stephen Johnson, Laurence J. Kotlikoff: w2183
This paper presents the results of an experimental study of the life cycle model in which subjects were asked to make preferred consumption choices under hypothetical life cycle economic conditions. The questions in the experiment are designed to test the model's assumption of rational choice and to elicit information about preferences. The subjects' responses suggest a widespread inability to make coherent and consistent consumption decisions. Errors in consumption decision-making appear to be very substantial and, in many cases, systematic. In addition, the experiment's data strongly reject the standard homothetic, time-separable life cycle model. The principal specific findings of the laboratory experiment are: (1) Subjects displayed significant inconsistencies in their consumption deci...

Published: Kotlikoff, Laurence J. (ed.) Essays on Saving, Bequests, Altruism, and Life-Cycle Planning. MIT Press, 2001.

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