Working Paper: NBER ID: w21272
Authors: Damon Jones; Aprajit Mahajan
Abstract: We conduct a field experiment designed to test theories of time-inconsistency, namely a "Beta-Delta" model of present bias. The experiment takes place in the context of a saving decision made by low-income tax filers who can deposit their income tax refund into an illiquid account. We find qualitative evidence consistent with present-biased preferences. The tradeoff between an earlier payment or a later one is much more skewed toward taking the early payment when the decision is made on the spot than when the decision is made in advance. We estimate a β and δ of 0.34 and 1.08 over an 8-month horizon, respectively, which translates into an annual discount rate of 164%.
Keywords: time inconsistency; saving behavior; low-income households; field experiment
JEL Codes: D14; D91; H24
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Present-biased preferences (D15) | saving decisions (D14) |
| Immediate rewards (J33) | likelihood of opting for immediate rewards (D91) |
| Time inconsistency (D15) | saving behavior (D14) |
| Soft-commitment device (D86) | likelihood of saving (D14) |
| Treatment arms (C90) | probability of soft-committing to save (D14) |
| Immediate incentive group (C92) | saving behavior (D14) |
| Delayed incentive group (C92) | saving behavior (D14) |