Working Paper: NBER ID: w13314
Authors: David Laibson; Sean Chanwook Lee; Peter Maxted; Andrea Repetto; Jeremy Tobacman
Abstract: We estimate β-δ time preferences and relative risk aversion (RRA) using a lifecycle model including stochastic income, liquid and illiquid assets, credit cards, dependents, Social Security, mortality, and bequests. Preference parameters are identified by cross-tabulating four lifecycle age intervals and four balance sheet moments: the proportion of households carrying (i.e., revolving) credit card debt, average carried credit card debt, average net wealth among households carrying credit card debt, and average net wealth among households not carrying credit card debt. The sixteen moments are approximately matched by (MSM) parameter estimates β = 0:50, δ = 0:99, and RRA = 1:3.
Keywords: Time Preferences; Relative Risk Aversion; Lifecycle Model; Consumer Behavior; Credit Card Debt
JEL Codes: D91; E21
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Present-biased preferences (D15) | Higher likelihood of credit card borrowing (G51) |
| Higher likelihood of credit card borrowing (G51) | High credit card debt and substantial illiquid wealth accumulation (G51) |
| Short-run discount rate (E43) | Higher likelihood of credit card borrowing (G51) |
| Present-biased preferences (D15) | High short-run discount rate (E43) |
| Short-run discount rate (E43) | High real interest rates on borrowing (E43) |
| Present-biased preferences (D15) | Divergence between short-run and long-run discount rates (E43) |
| Exponential discount function (D15) | Long-run discount rate (E43) |
| Present-biased preferences (D15) | Rejection of null hypothesis of exponential discounting (D15) |