Working Paper: NBER ID: w25232
Authors: James Andreoni; Christina Gravert; Michael A. Kuhn; Silvia Saccardo; Yang Yang
Abstract: If experimental subjects arbitrage against market interest rates when making intertemporal allocations of cash, the data will reveal nothing about subjects' discount rates, only uncovering subjects' market interest rates. If they frame choices narrowly, market rates will not be salient and the experiment will uncover subjects' utility discount rates. We test arbitrage directly by forcing all transactions with subjects to be instant electronic bank transfers, thus making arbitrage easy and salient. We also employ four decision frames to test alternative hypotheses. Our evidence contradicts arbitrage, supports money as a valid reward, and suggests framing as a correlate with present bias.
Keywords: intertemporal preferences; arbitrage; narrow bracketing; decision framing; present bias
JEL Codes: C18; C91; D15; D87; D9; G41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| arbitrage hypothesis (F31) | adjusted sooner income (ASI) (E01) |
| framing (Y20) | adjusted sooner income (ASI) (E01) |
| framing (Y20) | present bias (D15) |
| framing (Y20) | likelihood of present bias (D91) |
| interest rate (0) (E43) | corner choices (D43) |
| framing (Y20) | liquidity conditions (E41) |