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Does experience with high inflation affect intertemporal decision making? Sensitivity to inflation rates in Argentine and british delay discounting choices

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  • Macchia, Lucía
  • Plagnol, Anke C.
  • Reimers, Stian

Abstract

Delay discounting captures the way in which people devalue rewards which are not immediately available as a function of their delay until receipt. Normatively, decision makers should be sensitive to inflation rates when evaluating delayed rewards because the value of a delayed outcome is eroded by inflation. We hypothesised that participants from countries with direct experience of high inflation would be particularly sensitive to inflation rates when making intertemporal choices; i.e. they may be more likely to take into consideration the effect of inflation on future rewards. This study compares intertemporal choices of participants from countries with dramatically different histories of inflation: Argentina and Britain. Participants completed a delay discounting task under two inflation rate conditions (2% and 20%, between subjects). We found that people discounted future rewards more steeply under the 20% inflation rate condition than under the 2% condition. Participants from Argentina, the country with much higher current and historical inflation rates, discounted future rewards more steeply in both inflation rate conditions than participants from the UK. However, Argentines were not more sensitive to inflation rates than British people.

Suggested Citation

  • Macchia, Lucía & Plagnol, Anke C. & Reimers, Stian, 2018. "Does experience with high inflation affect intertemporal decision making? Sensitivity to inflation rates in Argentine and british delay discounting choices," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 75(C), pages 76-83.
  • Handle: RePEc:eee:soceco:v:75:y:2018:i:c:p:76-83
    DOI: 10.1016/j.socec.2018.05.006
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    References listed on IDEAS

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    1. Kirby, Kris N. & Marakovic, Nino N., 1995. "Modeling Myopic Decisions: Evidence for Hyperbolic Delay-Discounting within Subjects and Amounts," Organizational Behavior and Human Decision Processes, Elsevier, vol. 64(1), pages 22-30, October.
    2. Shane Frederick, 2005. "Cognitive Reflection and Decision Making," Journal of Economic Perspectives, American Economic Association, vol. 19(4), pages 25-42, Fall.
    3. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    4. Uri Benzion & Amnon Rapoport & Joseph Yagil, 1989. "Discount Rates Inferred from Decisions: An Experimental Study," Management Science, INFORMS, vol. 35(3), pages 270-284, March.
    5. Wang, Mei & Rieger, Marc Oliver & Hens, Thorsten, 2016. "How time preferences differ: Evidence from 53 countries," Journal of Economic Psychology, Elsevier, vol. 52(C), pages 115-135.
    6. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    7. Nicole Senecal & Teresa Wang & Elizabeth Thompson & Joseph W. Kable, 2012. "Normative arguments from experts and peers reduce delay discounting," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(5), pages 568-589, September.
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    Cited by:

    1. Christopher J. Bryant, 2019. "We Can’t Keep Meating Like This: Attitudes towards Vegetarian and Vegan Diets in the United Kingdom," Sustainability, MDPI, Open Access Journal, vol. 11(23), pages 1-17, December.

    More about this item

    Keywords

    Delay discounting; Intertemporal choice; Argentina; UK; Inflation rate;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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