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.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
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.
- Vivian Lei & Charles N. Noussair, 2002.
"An Experimental Test of an Optimal Growth Model,"
American Economic Review,
American Economic Association, vol. 92(3), pages 549-570, June.
- 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.
- Lei, V. & Noussair, C., 2000. "An Experimental Test of an Optimal Growth Model," Purdue University Economics Working Papers 1131, Purdue University, Department of Economics.
- Manzini, Paola & Mariotti, Marco, 2007.
"Choice Over Time,"
IZA Discussion Papers
2993, Institute for the Study of Labor (IZA).
- Paola Manzini & Marco Mariotti & Luigi Mittone, 2006.
"Choosing Monetary Sequences: Theory and Experimental Evidence,"
562, Queen Mary, University of London, School of Economics and Finance.
- 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," CEEL Working Papers 0601, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
- 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).
- Smith, John, 2009. "Cognitive dissonance and the overtaking anomaly: Psychology in the principal-agent relationship," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 38(4), pages 684-690, August.
- 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, 2008.
"Imperfect Memory and the Preference for Increasing Payments,"
Departmental Working Papers
200805, Rutgers University, Department of Economics.
- 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.
- 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.
- John Smith, 2007. "Cognitive Dissonance, Imperfect Memory and the Preference for Increasing Payments," Departmental Working Papers 200705, Rutgers University, Department of Economics.
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 you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.