Working Paper: NBER ID: w16347
Authors: James Andreoni; Charles Sprenger
Abstract: Experimentally elicited discount rates are frequently higher than what one would infer from market interest rates and seem unreasonable for economic decision-making. Such high rates have often been attributed to present bias and hyperbolic discounting. A commonly recognized bias of standard elicitation techniques is the use of linear preferences for identification. When attempts are made to correct this bias with additional experimental measures, researchers find exceptional degrees of utility function curvature. We present a new methodology for identifying time preferences, both discounting and utility function curvature, from simple allocation decisions. We estimate annual discount rates substantially lower than normally obtained, dynamically consistent discounting, and limited though significant utility function curvature.
Keywords: No keywords provided
JEL Codes: D81; D90
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Convex Time Budget (CTB) methodology (C41) | significantly lower estimates of annual discount rates (H43) |
| CTB methodology corrects for bias introduced by assuming linear utility (D11) | significantly lower estimates of annual discount rates (H43) |
| reject linearity of utility (D11) | evidence of limited utility curvature (D11) |
| no evidence of present bias (D15) | previous findings may be artifacts of differential risk or transaction costs (G41) |
| CTB methodology allows for clearer understanding of time preferences (D15) | accurate capture of nuances of time preferences, discounting, and utility curvature (D15) |