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Discount rate heterogeneity among older households: a puzzle?

Author

Listed:
  • Antoine Bozio

    (Paris School of Economics (PSE)
    Institute for Fiscal Studies (IFS))

  • Guy Laroque

    (Institute for Fiscal Studies (IFS)
    University College London (UCL))

  • Cormac O’Dea

    (Institute for Fiscal Studies (IFS))

Abstract

We put forward a method for estimating discount rates using wealth and income data. We build consumption from these data using the budget constraint. Consumption transitions yield discount rates by household groups. Applying this technique to a sample of older households, we find a similar distribution to those previously estimated using field data, though with a much lower mean than those found using experiments. Surprisingly, among this older population, patience is negatively correlated with education and numeracy. This goes against the positive correlation found for younger populations in experiments and some field studies. We discuss potential explanations for this result.

Suggested Citation

  • Antoine Bozio & Guy Laroque & Cormac O’Dea, 2017. "Discount rate heterogeneity among older households: a puzzle?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 30(2), pages 647-680, April.
  • Handle: RePEc:spr:jopoec:v:30:y:2017:i:2:d:10.1007_s00148-016-0623-y
    DOI: 10.1007/s00148-016-0623-y
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    2. Aungles, Aidan, 2021. "Joint estimation of time and risk preferences using a representative sample of UK households' subjective perceptions of time," Warwick-Monash Economics Student Papers 01, Warwick Monash Economics Student Papers.
    3. Jean-Pierre Drugeon & Bertrand Wigniolle, 0. "On Markovian collective choice with heterogeneous quasi-hyperbolic discounting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 0, pages 1-40.
    4. Freudenberg, Christoph & Laub, Natalie & Sutor, Tim, 2018. "Pension decrement rates across Europe – Are they too low?," The Journal of the Economics of Ageing, Elsevier, vol. 12(C), pages 35-45.
    5. Orlando Gomes, 0. "Hand-to-mouth consumers, rule-of-thumb savers, and optimal control," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 0, pages 1-35.
    6. Orlando Gomes, 2021. "Hand-to-mouth consumers, rule-of-thumb savers, and optimal control," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(2), pages 229-263, April.
    7. Jenny Robinson & David A. Comerford, 2020. "The Effect on Annuities Preference of Prompts to Consider Life Expectancy: Evidence from a UK Quota Sample," Economica, London School of Economics and Political Science, vol. 87(347), pages 747-762, July.
    8. Jean-Pierre Drugeon & Bertrand Wigniolle, 2021. "On Markovian collective choice with heterogeneous quasi-hyperbolic discounting," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 72(4), pages 1257-1296, November.

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    More about this item

    Keywords

    Time preference; Discount rate; Consumption;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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