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Present-bias, quasi-hyperbolic discounting, and fixed costs

  • Benhabib, Jess
  • Bisin, Alberto
  • Schotter, Andrew

In this paper we elicit preferences for money-time pairs via experimental techniques. We estimate a general specification of discounting that nests exponential and hyperbolic discounting, as well as various forms of present bias, including quasi-hyperbolic discounting. We find that discount rates are high and decline with both delay and amount, as most of the previous literature. We also find clear evidence for present bias. When identifying the form of the present bias, little evidence for quasi-hyperbolic discounting is found. The data strongly favor instead a specification with a small present bias in the form of a fixed cost, of the order of $4 on average across subjects. With such a fixed cost the curvature of discounting is imprecisely estimated and both exponential and hyperbolic discounting cannot be rejected for several subjects.

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Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 69 (2010)
Issue (Month): 2 (July)
Pages: 205-223

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Handle: RePEc:eee:gamebe:v:69:y:2010:i:2:p:205-223
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