Time Compression and Saving Rates

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Abstract

Economists have generally ignored the notion that perceived time may differ from clock time. Borrowing from the behavioral psychology literature, we investigate the case of time compression whereby perceived time passes more quickly than actual time. A framework is presented to embed time compression in economic models. We then apply the principle to a standard lifecycle permanent-income model and show how time compression produces age-dependent discounting and a motive for the accumulation of wealth.

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