Abstract: We propose an intertemporal consumption-saving model by exploring the implications of the Law of Small Numbers (LSN), a belief heuristic stating that any sample realization of a population should be representative of the population. First, the existence of the LSN reduces the precautionary savings demand. More importantly, we show that the LSN belief structure provides an alternative explanation for two fundamental anomalies in consumption theory: 1) excess sensitivity by showing that past changes in income predict future changes in consumption; and 2) excess smoothness by lowering consumption volatility and generating the empirical magnitude.

Keywords: Law of Small Numbers；Consumption；Excess sensitivity；Excess smoothness

该文2024年8月发表于Journal of Economic Behavior & Organization第224期，该期刊为AV淘宝 学术期刊分级方案B+级奖励期刊。

原文链接：//www.sciencedirect.com/science/article/pii/S0167268124002397