Conclusions

The final chapter summarizes the material covered by the book, offering our perspectives on areas of consent, disagreement, and future research. The book analyzes how consumers respond to changes in their economic environment and react to risks they face during the life cycle. In addressing these issues, the basic life-cycle permanent-income model is augmented with other significant features of consumers’ preferences and environment: precautionary motives for saving, borrowing constraints, life span uncertainty, intergenerational transfers, non-separability between consumption and leisure, habits, and financial sophistication. By and large, one can reconcile some puzzling facts present in the empirical data by means of relatively modest modifications of the basic version of the model, such as provision for home production and non-separable preferences between consumption and leisure. However, in order to explain other “anomalies” and “puzzles” observed in individuals’ actual saving and financial behaviors, more important modifications to the standard framework are required.