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Intertemporal Choice Bracketing and the Measurement of Time Preferences

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  • Yonas Alem
  • John Loeser
  • Aprajit Mahajan

Abstract

Economists routinely rationalize financial behaviors and prominent empirical anomalies using time preferences inferred from money earlier or later (MEL) responses; yet theory suggests such choices could instead reflect investment returns. We conduct a lab-in-the-field experiment in Kenya combining repeated MEL, randomized large cash transfers, and an illiquid savings product. Neither time preferences nor marginal investment returns exclusively rationalize choices: randomized cash transfers significantly affect MEL responses, yet subjects also fail to arbitrage across economically equivalent MEL and savings opportunities. However, we provide evidence that heterogeneity in time preferences drives the predictive power of MEL for savings decisions, rationalizing routine practice.

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  • Yonas Alem & John Loeser & Aprajit Mahajan, 2024. "Intertemporal Choice Bracketing and the Measurement of Time Preferences," NBER Working Papers 32683, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32683
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    JEL classification:

    • O10 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - General

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