Sunday, July 20, 2014

Allen Iverson and many NBA players offer a Test of the Permanent Income Hypothesis

NBA basketball players know their age, their contract's terms and the likely length of their playing career, and they can form a good guess of their post-career earnings.  Why isn't this information sufficient for planning one's lifetime consumption so that one saves while earning the high salary and lives off the savings when the player is retired and middle aged? Wouldn't Milton Friedman view such players' upfront earnings profiles as offering a good test of his permanent income/life cycle theory of consumption?

There are investment markets that allow for income smoothing over time such that if you earn a lot of $ while young and will earn nothing while old that you can have  a very good lifetime consumption flow.   When we see cases such as the consumption dynamics of Allen Iverson,  what do we conclude?  Does the NBA self select a set of people with hyperbolic preferences?    What share of NBA players have consumption paths that resemble Iverson?   We know we can augment the consumption model to include altruism for one's extended family (his 50 person entourage) or to include Keeping up with the Jones (showing off "bling") --- must these factors be included to explain NBA player spending patterns?   What % act as if they are following Friedman's standard consumption rules?  


Francisca rose said...

Be the most romantic person in your loved ones eye on Valentine's Day by sending this flowers and gifts and gain appreciation for your choice. Order online Cheap Valentine Flowers to USA and stay forever on your loved ones heart.

John Cook said...

I like your post and everything you share with us is current and very informative, I want to bookmark the page so I can return here from you that you have done a fantastic job.This is such a great resource that you are providing and you give it away for free. I love seeing websites that understand the value of providing a quality resource for free. It is the old what goes around comes around routine. Distribution Jobs

Logistics Sales Consultants said...

You always find fantastic articles on Green Economics - and this is yet another good in logistics warehouse jobs distribution jobs commercial motor jobs
logistics consultants

Fikri Ferdiansyah said...

Nice post. I leaгn something totally new and challenging on websites I stumbleupon on a daily bɑsis.Cara Tepat Supaya Cepat Hamil
It will always bе intereѕting to read thrߋugh artiϲles from other ѡriters аnd use a little something from their websіtes. Cara Tepat Supaya Tubuh Tidak Mudah Lelah