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Be patient when measuring Hyperbolic Discounting: Stationarity, Time Consistency and Time Invariance in a Field Experiment

Author

Listed:
  • Wendy Janssens

    (VU University Amsterdam, the Netherlands.)

  • Berber Kramer

    (International Food Policy Research Institute (IFPRI), United States)

  • Lisette Swart

    (VU University Amsterdam,the Netherlands)

Abstract

Most experimental evidence of hyperbolic discounting is based on violations of either stationarity or time consistency. Stationarity is violated when intertemporal choices differ for trade-offs in the near versus the more distant future. Time consistency on the other hand is violated if the optimal allocation for specific dates changes over time. Both types of choice reversals may however also result from time-varying discount rates. Hyperbolic discounting is an unambiguous explanation for choice reversals only if individuals simultaneously violate both stationarity and time consistency. Our field experiment examines the extent to which this is the case. At different points in time, the same participants allocated a future gift over sooner-smaller and later-larger rewards with varying front-end delays. We find that most violations of time consistency do not coincide with violations of stationarity. Random noise in decision-making alone does not explain this finding. Instead, we find a significant association between individual violations and changes in household wealth, in particular for participants with less access to credit. We conclude that in a context of liquidity constraints, eliciting violations of either stationarity or time consistency alone is insufficient to identify hyperbolic discounting.

Suggested Citation

  • Wendy Janssens & Berber Kramer & Lisette Swart, 2015. "Be patient when measuring Hyperbolic Discounting: Stationarity, Time Consistency and Time Invariance in a Field Experiment," Tinbergen Institute Discussion Papers 15-097/V, Tinbergen Institute, revised 14 Apr 2016.
  • Handle: RePEc:tin:wpaper:20150097
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    File URL: http://papers.tinbergen.nl/15097.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Balakrishnan, Uttara & Haushofer, Johannes & Jakiela, Pamela, 2016. "How Soon Is Now? Evidence of Present Bias from Convex Time Budget Experiments," IZA Discussion Papers 9653, Institute for the Study of Labor (IZA).
    2. repec:kap:expeco:v:20:y:2017:i:3:d:10.1007_s10683-016-9506-z is not listed on IDEAS
    3. Kramer, Berber & Kunst, David, 2017. "Intertemporal choice and income regularity: Non-fungibility in a lab-in-the-field experiment," IFPRI discussion papers 1646, International Food Policy Research Institute (IFPRI).
    4. Eduardo A. Cavallo & Tomás Serebrisky & Verónica Frisancho & Jonathan Karver & Andrew Powell & Diego Margot & Ancor Suárez-Alemán & Eduardo Fernández-Arias & Matías Marzani & Solange Berstein & Marian, 2016. "Saving for Development: How Latin America and the Caribbean Can Save More and Better," IDB Publications (Books), Inter-American Development Bank, number 94597 edited by Eduardo A. Cavallo & Tomás Serebrisky, February.
    5. repec:ebl:ecbull:eb-17-00376 is not listed on IDEAS
    6. Anujit Chakraborty & Evan M. Calford & Guidon Fenig & Yoram Halevy, 2017. "External and internal consistency of choices made in convex time budgets," Experimental Economics, Springer;Economic Science Association, vol. 20(3), pages 687-706, September.
    7. Sergio Da Silva & Dinorá De Faveri & Ana Correa & Raul Matsushita, 2017. "High-income consumers may be less hyperbolic when discounting the future," Economics Bulletin, AccessEcon, vol. 37(3), pages 1421-1434.
    8. Geng, Xin & Janssens, Wendy & Kramer, Berber N., 2017. "Liquid milk: Cash constraints and day-to-day intertemporal choice in financial diaries," IFPRI discussion papers 1602, International Food Policy Research Institute (IFPRI).
    9. repec:idb:idbbks:7677 is not listed on IDEAS

    More about this item

    Keywords

    Time preferences; present bias; temporal stability;

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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