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Decision-environment effects on intertemporal financial choices: How relevant are resource-depletion models?

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  • Kuhn, Michael A.
  • Kuhn, Peter
  • Villeval, Marie Claire

Abstract

A large literature in psychology studies the effects of the immediate decision environment on behavior, and conceptualizes both cognitive capacity and self-control as scarce resources that can be depleted by recent use, and replenished by factors like rest and nutrition. We assess the relevance of resource-depletion models for intertemporal financial decisions by estimating the effects of three interventions – prior impulse-controlling activity, consumption of a sugared drink, and consumption of a placebo (sugar-free) drink – on intertemporal monetary choices in a cash-advance framework. These manipulations have large impacts on the demand for advances, but contrary to resource-based models prior impulse-controlling activity and placebo drink consumption increase patience. To understand these effects, we estimate treatment effects on the three parameters of a decision utility model for every subject in our sample. All treatments reduce utility curvature and present-bias, and these movements are highly correlated. Together, we argue that these patterns suggest that the treatments are acting not on subjects’ fundamental utility parameters but on subjects’ tendencies to frame financial decisions narrowly (within the frame of the lab experiment) versus broadly (in the context of their other financial options). Thus, while decision environments have large effects on intertemporal financial decisions, both the direction and the mechanisms underlying these effects appear to be quite different from those suggested by resource-depletion models.

Suggested Citation

  • Kuhn, Michael A. & Kuhn, Peter & Villeval, Marie Claire, 2017. "Decision-environment effects on intertemporal financial choices: How relevant are resource-depletion models?," Journal of Economic Behavior & Organization, Elsevier, vol. 137(C), pages 72-89.
  • Handle: RePEc:eee:jeborg:v:137:y:2017:i:c:p:72-89
    DOI: 10.1016/j.jebo.2017.02.014
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    1. repec:eee:jeborg:v:145:y:2018:i:c:p:80-94 is not listed on IDEAS
    2. repec:gam:jsusta:v:9:y:2017:i:5:p:842-:d:98960 is not listed on IDEAS
    3. repec:eee:jeborg:v:145:y:2018:i:c:p:370-401 is not listed on IDEAS

    More about this item

    Keywords

    Time preferences; Present bias; Availability heuristic; Experiment; Resource-based model;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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