Columbia Business School Presents New Behavioral Economics Research

At one time one of the world’s top hedge fund managers and a prolific philanthropist, Arthur J. Samberg supports numerous non-profit causes through generous donations. In 2006, Art Samberg’s donation of $25 million to Columbia Business School, where he earned his master’s degree in business administration, helped the school hire 20 new professors and expand its research capabilities.

The Columbia Business School faculty conduct research in a number of areas. Andrew Hertzberg, an assistant professor of finance and economics, recently presented the results of his research on the failure of consumer households to save money for retirement. Hertzberg’s approach challenged the typical assumptions that assume the members of households have identical objectives. Allowing for a limited degree of selfishness, even in stable households, enabled him to gain insight into how the pursuit of personal desires affects saving rates.

In particular, Hertzberg found that spending on durable goods, such as cars and jewelry, crowded out savings. Overspending on these items occurs because the benefits of the items often apply primarily to one member of the household, and that individual redirects shared resources for their own benefit. In light of this trend, which exists even in the context of successful marriages and family relationships, Hertzberg suggests couples can maintain fiscal discipline by actively designing a savings plan in advance rather than passively accumulating unspent funds.

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