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Estimating Time Preferences from Convex Budgets

  • James Andreoni
  • Charles Sprenger

Experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision-making. Such high rates are often attributed to present-biased discounting. A well-known bias of standard measurements is the assumption of linear consumption utility. Attempting to correct this bias using measures of risk aversion to identify concavity, researchers find reasonable discounting but at the cost of exceptionally high utility function curvature. We present a new methodology for identifying time preferences, both discounting and curvature, from simple allocation decisions. We find reasonable levels of both discounting and curvature and, surprisingly, dynamically consistent time preferences. (JEL C91, D12, D81)

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 814577000000000457.

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Date of creation: 04 Feb 2010
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Handle: RePEc:cla:levarc:814577000000000457
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