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Can Reference Dependent Preference Explain Household Savings in China?

【Authors】
YAO Dongmin, XU Yixuan & ZHANG Pengyuan
【WorkUnit】
YAO Dongmin, XU Yixuan & ZHANG Pengyuan (Central University of Finance and Economics, 100081)
【Abstract】

At the end of the 20th century, behavioral economists introduced reference-dependent preferences into the savings model to try to explain household savings behavior in scenarios of uncertainty, but there is a lack of empirical evidence to verify the model‘s prediction or interpretation. To find out whether the reference dependent preference can explain Chinese residents’ savings behavior, this paper builds a twoperiod reference-dependent savings model based on the special case of Wenchuan earthquake, and makes theoretical predictions of changes to residents‘ savings behavior and happiness based on all the change paths caused by the earthquake. Then based on data from the Chinese Household Income Project (CHIP), it attempts to verify these predictions by using the propensity score matching-difference-in-differences method (PSM-DID). It finds that the earthquake has a “trending toward median” effect on the reference of different groups-it lowers the reference of people with a high original reference, whereas elevates the reference of those with a lower original reference. The “trending toward median” of references can effectively explain the increase in the urban household savings rate in the earthquake-hit areas in both long and short terms.

JEL:D14, E21, C93

【KeyWords】
Reference Point, Urban Household Savings Rate, Earthquake, Happiness