Houser, Daniel () (Department of Economics and Economic Science Laboratory, University of Arizona) Winter, Joachim () (Mannheim Research Institute for the Economics of Aging (MEA))
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Structural econometric methods that assume agents have rational expectations are often criticized. Yet, little is known about the relative costs and benefits of adopting alternative empirical strategies. This paper compares three procedures for inference about a single structural parameter using data from a laboratory price search experiment. Our novel experimental design induces preferences up to the subjective rate of time preference, leaving unrestricted only this parameter and the decision rule that subjects use in solving the search task. We analyze the experimental data under the assumptions of both rational expectations and heuristic behavior, and we also draw inferences using a simple revealed preference analysis that does not require strong behavioral assumptions. We find that the revealed-preference analysis does not provide much information about the discount rate, while the two specifications with stronger behavioral assumptions provide sharper and statistically identical inferences about the population's discount rate distribution. However, substantial differences in inference appear at the individual level. We compare the individual discount-rate estimates to an external measure of forward looking behavior obtained for each subject using an instrument validated in the psychology literature. The estimates obtained under heuristic behavior are statistically significantly positively correlated with our external measure of time preference, while the estimates obtained under rational expectations and the revealed-preference estimates are not.
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Paper provided by Sonderforschungsbereich 504, Universität Mannheim & Sonderforschungsbereich 504, University of Mannheim in its series Sonderforschungsbereich 504 Publications with number
01-34.
Length: 52 pages Date of creation: 22 Sep 2000 Date of revision: Handle: RePEc:xrs:sfbmaa:01-34
Note: Financial support from the Deutsche Forschungsgemeinschaft, SFB 504 at the University of Mannheim, is gratefully acknowledged. Contact details of provider: Postal: D-68131 Mannheim Phone: (49) (0) 621-292-2547 Fax: (49) (0) 621-292-5594 Email: Web page: http://www.sfb504.uni-mannheim.de/ More information through EDIRC
References listed on IDEAS 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.:
Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999.
"Consumption Over the Life Cycle,"
NBER Working Papers
7271, National Bureau of Economic Research, Inc.
[Downloadable!] (restricted)
Other versions:
Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002.
"Consumption Over the Life Cycle,"
Econometrica,
Econometric Society, vol. 70(1), pages 47-89, January.
[Downloadable!] (restricted)