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Estimating Time Preferences from Convex Budgets

Listed author(s):
  • James Andreoni
  • Charles Sprenger

Experimentally elicited discount rates are frequently higher than what one would infer from market interest rates and seem unreasonable for economic decision-making. Such high rates have often been attributed to present bias and hyperbolic discounting. A commonly recognized bias of standard elicitation techniques is the use of linear preferences for identification. When attempts are made to correct this bias with additional experimental measures, researchers find exceptional degrees of utility function curvature. We present a new methodology for identifying time preferences, both discounting and utility function curvature, from simple allocation decisions. We estimate annual discount rates substantially lower than normally obtained, dynamically consistent discounting, and limited though significant utility function curvature.

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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
Handle: RePEc:cla:levarc:814577000000000457
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