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Learning Temporal Preferences

  • Miravete, Eugenio J
  • Palacios-Huerta, Ignacio

We analyse households’ responses to an unanticipated change in consumption opportunities and evaluate their implications for the nature and formation of preferences. We study the tariff experiment conducted by South Central Bell where local telephone measured tariffs were introduced for the first time in Louisville, KY. Households were given the choice to remain in a flat rate scheme or switch to the new measured tariff scheme. The results of the analysis support models where consumers react to a change in the environment in the direction predicted by theories of rational investment in information. Households learn rapidly to undertake optimal decisions, and react to potential savings of seemingly small magnitude, typically about $5.00 per month. We find no support for models where consumers’ responses are determined by inertia or impulsiveness, including systematic tendencies to undervalue future wants common to models of hyperbolic discounting. From a methodological viewpoint, the analysis shows how the appropriate treatment of predetermined endogenous variables and state dependence turns out to be crucial for interpreting the data.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3604.

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Date of creation: Oct 2002
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Handle: RePEc:cpr:ceprdp:3604
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  1. Miravete, Eugenio J, 2000. "Estimating Demand for Local Telephone Service with Asymmetric Information and Optional Calling Plans," CEPR Discussion Papers 2635, C.E.P.R. Discussion Papers.
  2. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
  3. Laibson, David I. & Harris, Christopher, 2012. "Instantaneous Gratification," Scholarly Articles 9918802, Harvard University Department of Economics.
  4. Matthew Rabin, 2000. "Risk Aversion and Expected-Utility Theory: A Calibration Theorem," Econometrica, Econometric Society, vol. 68(5), pages 1281-1292, September.
  5. Arellano, Manuel & Carrasco, Raquel, 2003. "Binary choice panel data models with predetermined variables," Journal of Econometrics, Elsevier, vol. 115(1), pages 125-157, July.
  6. Simon, Herbert A, 1986. "Rationality in Psychology and Economics," The Journal of Business, University of Chicago Press, vol. 59(4), pages S209-24, October.
  7. Bo E. Honoré & Ekaterini Kyriazidou, 2000. "Panel Data Discrete Choice Models with Lagged Dependent Variables," Econometrica, Econometric Society, vol. 68(4), pages 839-874, July.
  8. M Arellano & O Bover, 1990. "Another Look at the Instrumental Variable Estimation of Error-Components Models," CEP Discussion Papers dp0007, Centre for Economic Performance, LSE.
  9. Becker, Gary S & Mulligan, Casey B, 1997. "The Endogenous Determination of Time Preference," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 729-58, August.
  10. Miravete, Eugenio J, 2000. "Choosing the Wrong Calling Plan? Ignorance, Learning, and Risk Aversion," CEPR Discussion Papers 2562, C.E.P.R. Discussion Papers.
  11. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  12. Eugenio J. Miravete, 2003. "Choosing the Wrong Calling Plan? Ignorance and Learning," American Economic Review, American Economic Association, vol. 93(1), pages 297-310, March.
  13. Becker, G.S. & Mulligan, C.B., 1994. "On the Endogenous Determination of Time Preference," University of Chicago - Economics Research Center 94-2, Chicago - Economics Research Center.
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