Behavioral Household Finance
This chapter provides an overview of household finance. The first part summarizes key facts regarding household financial behavior, emphasizing empirical regularities that are inconsistent with the standard classical economic model and discussing extensions of the classical model and explanations grounded in behavioral economics that can account for the observed patterns. This part covers five topics: consumption and savings, borrowing, payments, asset allocation, and insurance. The second part addresses interventions that firms, governments, and other parties deploy to shape household financial outcomes: education and information, peer effects and social influence, product design, advice and disclosure, choice architecture, and interventions that directly target prices or quantities.
Forthcoming in the 1st Handbook of Behavioral Economics, Vol. 1, edited by Douglas Bernheim, Stefano DellaVigna, and David Laibson, Elsevier. We thank Doug Bernheim, Stefano DellaVigna, and audience participants at the Stanford Institute for Theoretical Economics for helpful comments. Ross Chu, Sarah Holmes, Justin Katz, Omeed Maghzian, and Charlie Rafkin provided excellent research assistance. We acknowledge financial support from the National Institute on Aging (grant R01AG021650). The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
John Beshears is a member of the Advisory Board of Nutmeg Saving and Investment, a paid position. Nutmeg is a provider of investment products. John Beshears is also a member of the Advisory Board of 401k4USA, an unpaid position.