Working Paper: NBER ID: w20948
Authors: Keith M. Ericson; John Myles White; David Laibson; Jonathan D. Cohen
Abstract: Heuristic models have been proposed for many domains of choice. We compare heuristic models of intertemporal choice, which can account for many of the known intertemporal choice anomalies, to discounting models. We conduct an out-of-sample, cross-validated comparison of intertemporal choice models. Heuristic models outperform traditional utility discounting models, including models of exponential and hyperbolic discounting. The best performing models predict choices by using a weighted average of absolute differences and relative (percentage) differences of the attributes of the goods in a choice set. We conclude that heuristic models explain time-money tradeoff choices in experiments better than utility discounting models.
Keywords: Intertemporal Choice; Heuristics; Delay Discounting
JEL Codes: D03; D9
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Heuristic models (C53) | Traditional discounting models (D15) |
| Heuristic models (C53) | Predictive accuracy in intertemporal choices (D15) |
| ITCH model (D57) | Anomalies in intertemporal choice tasks (D15) |
| Heuristics (D91) | Reliance on systematic discounting methods (H43) |
| ITCH model (D57) | Decreasing impatience (D15) |
| ITCH model (D57) | Absolute magnitude effect (C20) |