Working Paper: CEPR ID: DP14447
Authors: Pasquale Schiraldi; Matthew Levy
Abstract: We study the identification of intertemporal preferences in a stationary dynamic discrete decision model. We propose a new approach which focuses on problems which are intrinsically dynamic: either there is endogenous variation in the choice set, or preferences depend directly on the history. History dependence links the choices of the decision-maker across periods in a more fundamental sense standard dynamic discrete choice models typically assume. We consider both exponential discounting as well as the quasi-hyperbolic discounting models of time preferences. We show that if the utility function or the choice set depends on the current states as well as the past choices and/or states, then time preferences are non-parametrically point-identified separately from the utility function under mild conditions on the data and we may also recover the instantaneous utility function without imposing any normalization on the utility across states.
Keywords: dynamic discrete choice; identification; time preferences; quasihyperbolic discounting
JEL Codes: No JEL codes provided
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| utility function or choice set depends on current states and past choices (D11) | intertemporal preferences are nonparametrically identified separately from the utility function (D15) |
| at least one choice is unavailable in some states (K16) | discount factor can be identified (E43) |
| history dependence of at least length two (C41) | identification of time preferences (D15) |
| variations in choice sets linked to past states and choices (D91) | identification of preferences (D11) |
| length of history dependence must be at least two (C41) | proper identification (Y50) |