Violations of Present-Value Maximization in Income Choice
AbstractWe report results of an experiment testing for present-value maximization in intertemporal income choice. Two-thirds of subjects did not maximize present value. Through a series of experimental manipulations that impose costs on non-present value maximizers, we are able to reduce the level of violations substantially. We find, however, that a sizebable proportion of subjects continue to systematically violate present value principles. Our interpretation is that these subjects either cannot or chose not to distinguish between income and expenditure in making their choices. Self-management, bounded rationality, and sequence preference are suggested as possible explanations for such behavior.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Springer in its journal Theory and Decision.
Volume (Year): 43 (1997)
Issue (Month): 1 (July)
Contact details of provider:
Web page: http://www.springerlink.com/link.asp?id=100341
Intertemporal choice; present value; self management; bounded rationality; sequence preference;
Other versions of this item:
- Gary Gigliotti & Barry Sopher, 1996. "Violations of Present-value Maximization in Income Choice," Departmental Working Papers 199624, Rutgers University, Department of Economics.
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Loewenstein, George F & Sicherman, Nachum, 1991. "Do Workers Prefer Increasing Wage Profiles?," Journal of Labor Economics, University of Chicago Press, vol. 9(1), pages 67-84, January.
- Manzini, Paola & Mariotti, Marco, 2007.
"Choice Over Time,"
IZA Discussion Papers
2993, Institute for the Study of Labor (IZA).
- Manzini, Paola & Mariotti, Marco & Mittone, Luigi, 2006.
"Choosing Monetary Sequences: Theory and Experimental Evidence,"
IZA Discussion Papers
2129, Institute for the Study of Labor (IZA).
- Paola Manzini & Marco Mariotti & Luigi Mittone, 2010. "Choosing monetary sequences: theory and experimental evidence," Theory and Decision, Springer, vol. 69(3), pages 327-354, September.
- Paola Manzini & Marco Mariotti & Luigi Mittone, 2006. "Choosing Monetary Sequences: Theory and Experimental Evidence," Working Papers 562, Queen Mary, University of London, School of Economics and Finance.
- Paola Manzini & Marco Mariotti & Luigi Mittone, 2006. "Choosing Monetary Sequences: Theory and Experimental Evidence," CEEL Working Papers 0601, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- Vital Anderhub & Werner GÃ¤uth & Wieland MÃ¤uller & Martin Strobel, 2000. "An Experimental Analysis of Intertemporal Allocation Behavior," Experimental Economics, Springer, vol. 3(2), pages 137-152, October.
- John Smith, 2007. "Cognitive Dissonance, Imperfect Memory and the Preference for Increasing Payments," Departmental Working Papers 200705, Rutgers University, Department of Economics.
- Noussair, C.N. & Lei, V., 2002.
"An experimental test of an optimal growth model,"
Open Access publications from Tilburg University
urn:nbn:nl:ui:12-378701, Tilburg University.
- John Smith, 2009.
"Imperfect Memory and the Preference for Increasing Payments,"
Journal of Institutional and Theoretical Economics (JITE),
Mohr Siebeck, Tübingen, vol. 165(4), pages 684-700, December.
- John Smith, 2008. "Imperfect Memory and the Preference for Increasing Payments," Departmental Working Papers 200805, Rutgers University, Department of Economics.
- Sean Duffy & John Smith, 2013.
"Preference for increasing wages: How do people value various streams of income?,"
Judgment and Decision Making,
Society for Judgment and Decision Making, vol. 8(1), pages 74-90, January.
- Duffy, Sean & Smith, John, 2010. "Preference for increasing wages: How do people value various streams of income?," MPRA Paper 23559, University Library of Munich, Germany.
- Smith, John, 2009. "Cognitive dissonance and the overtaking anomaly: Psychology in the principal-agent relationship," The Journal of Socio-Economics, Elsevier, vol. 38(4), pages 684-690, August.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Guenther Eichhorn) or (Christopher F. Baum).
If references are entirely missing, you can add them using this form.