Preferences over wealth: Experimental evidence

Preferences over wealth are a channel to explain why households in the aggregate are less responsive when real interest rates fall. Following such preferences, they save more than would be optimal in a standard model. However, little is known about preferences over wealth empirically. We run an intentionally simple lab experiment on intertemporal spending and saving decisions with 180 students. Under a positive discount factor, zero interest and linear utility, maximizing behaviour would imply spending any funds instan-taneously. While half of the participants behave optimally, we find a robust pattern where participants on average form and maintain a stock of wealth, consistent with wealth en -tering the utility function directly.(c) 2020 Elsevier B.V. All rights reserved.