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Arbitrage Or Narrow Bracketing? On Using Money to Measure Intertemporal Preferences

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  • James Andreoni
  • Christina Gravert
  • Michael A. Kuhn
  • Silvia Saccardo
  • Yang Yang

Abstract

If experimental subjects arbitrage against market interest rates when making intertemporal allocations of cash, the data will reveal nothing about subjects' discount rates, only uncovering subjects' market interest rates. If they frame choices narrowly, market rates will not be salient and the experiment will uncover subjects' utility discount rates. We test arbitrage directly by forcing all transactions with subjects to be instant electronic bank transfers, thus making arbitrage easy and salient. We also employ four decision frames to test alternative hypotheses. Our evidence contradicts arbitrage, supports money as a valid reward, and suggests framing as a correlate with present bias.

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  • James Andreoni & Christina Gravert & Michael A. Kuhn & Silvia Saccardo & Yang Yang, 2018. "Arbitrage Or Narrow Bracketing? On Using Money to Measure Intertemporal Preferences," NBER Working Papers 25232, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:25232
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    Cited by:

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    2. Aycinena, Diego & Blazsek, Szabolcs & Rentschler, Lucas & Sprenger, Charles, 2022. "Intertemporal choice experiments and large-stakes behavior," Journal of Economic Behavior & Organization, Elsevier, vol. 196(C), pages 484-500.
    3. Belot, Michele & Kircher, Philipp & Muller, Paul, 2021. "Eliciting time preferences when income and consumption vary: Theory, validation & application to job search," LIDAM Discussion Papers CORE 2021035, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    4. Benjamin Enke & Thomas Graeber & Ryan Oprea, 2023. "Complexity and Hyperbolic Discounting," NBER Working Papers 31047, National Bureau of Economic Research, Inc.
    5. Kuroishi, Yusuke & Sawada, Yasuyuki, 2024. "On the stability of preferences: Experimental evidence from two disasters," European Economic Review, Elsevier, vol. 161(C).
    6. Dizon-Ross, Rebecca & Aggarwal, Shilpa & Zucker, Ariel, 2020. "Incentivizing Behavioral Change: The Role of Time Preferences," CEPR Discussion Papers 14751, C.E.P.R. Discussion Papers.
    7. Thomas Epper & Ernst Fehr & Helga Fehr-Duda & Claus Thustrup Kreiner & David Dreyer Lassen & Søren Leth-Petersen & Gregers Nytoft Rasmussen, 2020. "Time Discounting and Wealth Inequality," American Economic Review, American Economic Association, vol. 110(4), pages 1177-1205, April.
    8. Benjamin Enke & Thomas Graeber & Ryan Oprea, 2023. "Complexity and Time," CESifo Working Paper Series 10327, CESifo.
    9. Stephen L. Cheung, 2020. "Eliciting utility curvature in time preference," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 493-525, June.
    10. Pauline Vorjohann, 2023. "Reference-dependent choice bracketing," Discussion Papers 2309, University of Exeter, Department of Economics.
    11. Pavlo R. Blavatskyy, 2022. "Intertemporal choice as a tradeoff between cumulative payoff and average delay," Journal of Risk and Uncertainty, Springer, vol. 64(1), pages 89-107, February.
    12. Benjamin Enke & Thomas W. Graeber, 2021. "Cognitive Uncertainty in Intertemporal Choice," CESifo Working Paper Series 9472, CESifo.
    13. Haushofer, Johannes & Jain, Prachi & Musau, Abednego & Ndetei, David, 2021. "Stress may increase choice of sooner outcomes, but not temporal discounting," Journal of Economic Behavior & Organization, Elsevier, vol. 183(C), pages 377-396.
    14. Burro, Giovanni & McDonald, Rebecca & Read, Daniel & Taj, Umar, 2022. "Patience decreases with age for the poor but not for the rich: an international comparison," Journal of Economic Behavior & Organization, Elsevier, vol. 193(C), pages 596-621.

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    More about this item

    JEL classification:

    • C18 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Methodolical Issues: General
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • D87 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Neuroeconomics
    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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