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How Soon Is Now? Evidence of Present Bias from Convex Time Budget Experiments

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  • Uttara Balakrishnan
  • Johannes Haushofer
  • Pamela Jakiela

Abstract

Empirically observed intertemporal choices about money have long been thought to exhibit present bias, i.e. higher short-term compared to long-term discount rates. Recently, this view has been called into question on both empirical and theoretical grounds, and a spate of recent findings suggest that present bias for money is minimal or non-existent when one allows for curvature in the utility function and transaction costs are tightly controlled. However, an alternative interpretation of many of these findings is that, in the interest of equalizing transaction costs across earlier and later payments, small delays were introduced between the time of the experiment and the soonest payment. We conduct a laboratory experiment in Kenya in which we elicit time and risk preference parameters from 494 participants, using convex time budgets and tightly controlling for transaction costs. We vary whether same-day payments are made immediately after the experimental session or at the close of the business day. Using the Kenyan mobile money system M-Pesa to make real-time transfers to subjects' phones allows us to make the soonest payments truly immediate. We find strong evidence of present bias, with estimates of the present bias parameter ranging from 0.902 to 0.924 — but only when same-day payments are made immediately after the experiment. This result suggests that present bias for money does in fact exist, but only for truly immediate payments.

Suggested Citation

  • Uttara Balakrishnan & Johannes Haushofer & Pamela Jakiela, 2017. "How Soon Is Now? Evidence of Present Bias from Convex Time Budget Experiments," NBER Working Papers 23558, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:23558
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    References listed on IDEAS

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    1. Xavier Giné & Jessica Goldberg & Dan Silverman & Dean Yang, 2018. "Revising Commitments: Field Evidence on the Adjustment of Prior Choices," Economic Journal, Royal Economic Society, vol. 128(608), pages 159-188, February.
    2. Hans-Martin von Gaudecker & Arthur van Soest & Erik Wengstrom, 2011. "Heterogeneity in Risky Choice Behavior in a Broad Population," American Economic Review, American Economic Association, vol. 101(2), pages 664-694, April.
    3. Pamela Jakiela & Owen Ozier, 2016. "Does Africa Need a Rotten Kin Theorem? Experimental Evidence from Village Economies," Review of Economic Studies, Oxford University Press, vol. 83(1), pages 231-268.
    4. A. Colin Cameron & Douglas L. Miller, 2015. "A Practitioner’s Guide to Cluster-Robust Inference," Journal of Human Resources, University of Wisconsin Press, vol. 50(2), pages 317-372.
    5. Janssens, Wendy & Kramer, Berber & Swart, Lisette, 2017. "Be patient when measuring hyperbolic discounting: Stationarity, time consistency and time invariance in a field experiment," Journal of Development Economics, Elsevier, vol. 126(C), pages 77-90.
    6. Johannes Haushofer & Jeremy Shapiro, 2016. "The Short-term Impact of Unconditional Cash Transfers to the Poor: ExperimentalEvidence from Kenya," The Quarterly Journal of Economics, Oxford University Press, vol. 131(4), pages 1973-2042.
    7. Mark Dean & Anja Sautmann, 2014. "Credit Constraints and the Measurement of Time Preferences," Working Papers 2014-1, Brown University, Department of Economics.
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    Cited by:

    1. Backes-Gellner, Uschi & Herz, Holger & Kosfeld, Michael & Oswald, Yvonne, 2018. "Do Preferences and Biases predict Life Outcomes? Evidence from Education and Labor Market Entry Decisions," CEPR Discussion Papers 12609, C.E.P.R. Discussion Papers.
    2. Dertwinkel-Kalt, Markus & Köster, Mats & Peiseler, Florian, 2019. "Attention-driven demand for bonus contracts," European Economic Review, Elsevier, vol. 115(C), pages 1-24.
    3. Felix Koelle & Lukas Wenner, 2018. "Present-Biased Generosity: Time Inconsistency across Individual and Social Contexts," Discussion Papers 2018-02, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    4. Markus Dertwinkel-Kalt & Mats Köster & Florian Peiseler, 2019. "Attention-driven demand for bonus contracts," CESifo Working Paper Series 7539, CESifo Group Munich.
    5. Felix Koelle & Thomas Lauer, 2018. "Cooperation, Discounting, and the Effects of Delayed Costs and Benefits," Discussion Papers 2018-10, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
    6. Rachel Cassidy, 2018. "Are the poor so present-biased?," IFS Working Papers W18/24, Institute for Fiscal Studies.
    7. Alexis Direr, 2019. "Bringing present bias back to the present," Working Papers hal-02133525, HAL.
    8. Rachel Cassidy, 2018. "Are the poor so present-biased?," CSAE Working Paper Series 2018-19, Centre for the Study of African Economies, University of Oxford.
    9. Nathan Fiala, 2017. "Business is Tough, but Family is Worse: Household Bargaining and Investment in Microenterprises in Uganda," Working papers 2017-05, University of Connecticut, Department of Economics.

    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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