Estimating Time Preferences from Convex Budgets
James Andreoni, Charles Sprenger
American Economic Review · 2012 · Volume 102 · Issue 7
Abstract
Experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision-making. Such high rates are often attributed to present-biased discounting. A well-known bias of standard measurements is the assumption of linear consumption utility. Attempting to correct this bias using measures of risk aversion to identify concavity, researchers find reasonable discounting but at the cost of exceptionally high utility function curvature. We present a new methodology for identifying time preferences, both discounting and curvature, from simple allocation decisions. We find reasonable levels of both discounting and curvature and, surprisingly, dynamically consistent time preferences. (JEL C91, D12, D81)
Keywords
Design of Experiments: Laboratory, Individual, Consumer Economics: Empirical Analysis, Criteria for Decision-Making under Risk and Uncertainty
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