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Estimating Time Preferences from Convex Budgets

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  • James Andreoni
  • Charles Sprenger

Abstract

Experimentally elicited discount rates are frequently higher than what one would infer from market interest rates and seem unreasonable for economic decision-making. Such high rates have often been attributed to present bias and hyperbolic discounting. A commonly recognized bias of standard elicitation techniques is the use of linear preferences for identification. When attempts are made to correct this bias with additional experimental measures, researchers find exceptional degrees of utility function curvature. We present a new methodology for identifying time preferences, both discounting and utility function curvature, from simple allocation decisions. We estimate annual discount rates substantially lower than normally obtained, dynamically consistent discounting, and limited though significant utility function curvature.

Suggested Citation

  • James Andreoni & Charles Sprenger, 2010. "Estimating Time Preferences from Convex Budgets," NBER Working Papers 16347, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:16347
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    More about this item

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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