Modifications are proposed to make the life cycle theory more behaviorally realistic. The enriched model is called the Behavioral Life Cycle (BLC) hypothesis. Three important behavioral features that are usually missing from economic analyses are incorporated in the new model: 1. self-control, 2. mental accounting, and 3. framing. The key assumptions of the proposed BLC theory are that households treat components of their wealth as nonfungible, even in the absence of credit rationing. Specifically, wealth is assumed to be divided into 3 mental accounts -- current income, current assets, and future income. The temptation to consume is assumed to be greatest for current income and least for future income. Considerable empirical support for this more realistic BLC theory is presented, primarily drawn from published econometric studies.
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