Time preference and decision rules in a price search experiment
Structural econometric methods that assume agents have rational expectations are often criticized. Yet, little is known about the relative costs and benefits of adopting alternative empirical strategies. This paper compares three procedures for inference about a single structural parameter using data from a laboratory price search experiment. Our novel experimental design induces preferences up to the subjective rate of time preference, leaving unrestricted only this parameter and the decision rule that subjects use in solving the search task. We analyze the experimental data under the assumptions of both rational expectations and heuristic behavior, and we also draw inferences using a simple revealed preference analysis that does not require strong behavioral assumptions. We find that the revealed-preference analysis does not provide much information about the discount rate, while the two specifications with stronger behavioral assumptions provide sharper and statistically identical inferences about the population's discount rate distribution. However, substantial differences in inference appear at the individual level. We compare the individual discount-rate estimates to an external measure of forward looking behavior obtained for each subject using an instrument validated in the psychology literature. The estimates obtained under heuristic behavior are statistically significantly positively correlated with our external measure of time preference, while the estimates obtained under rational expectations and the revealed-preference estimates are not.
|Date of creation:||22 Sep 2000|
|Date of revision:|
|Note:||Financial support from the Deutsche Forschungsgemeinschaft, SFB 504 at the University of Mannheim, is gratefully acknowledged.|
|Contact details of provider:|| Postal: D-68131 Mannheim|
Phone: (49) (0) 621-292-2547
Fax: (49) (0) 621-292-5594
Web page: http://www.sfb504.uni-mannheim.de/
More information through EDIRC
Web page: http://www.sfb504.uni-mannheim.de
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- El-Gamal, Mahmoud A. & Grether, David M., 1995. "Are People Bayesian? Uncovering Behavioral Strategies," Working Papers 919, California Institute of Technology, Division of the Humanities and Social Sciences.
- Donkers, A.C.D. & van Soest, A.H.O., 1997.
"Subjective measures of household preferences and financial decisions,"
1997-70, Tilburg University, Center for Economic Research.
- Donkers, Bas & van Soest, Arthur, 1999. "Subjective measures of household preferences and financial decisions," Journal of Economic Psychology, Elsevier, vol. 20(6), pages 613-642, December.
- Krusell, Per & Smith, Anthony Jr., 1996. "Rules of thumb in macroeconomic equilibrium A quantitative analysis," Journal of Economic Dynamics and Control, Elsevier, vol. 20(4), pages 527-558, April.
- George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 573-597.
- Harald Uhlig & Martin Lettau, 1999. "Rules of Thumb versus Dynamic Programming," American Economic Review, American Economic Association, vol. 89(1), pages 148-174, March.
- Hey, John D., 1982. "Search for rules for search," Journal of Economic Behavior & Organization, Elsevier, vol. 3(1), pages 65-81, March.
- Uri Benzion & Amnon Rapoport & Joseph Yagil, 1989. "Discount Rates Inferred from Decisions: An Experimental Study," Management Science, INFORMS, vol. 35(3), pages 270-284, March.
- Samwick, Andrew A., 1998.
"Discount rate heterogeneity and social security reform,"
Journal of Development Economics,
Elsevier, vol. 57(1), pages 117-146, October.
- Andrew A. Samwick, 1997. "Discount Rate Heterogeneity and Social Security Reform," NBER Working Papers 6219, National Bureau of Economic Research, Inc.
- Michael P. Keane & Kenneth I. Wolpin, 1995.
"The career decisions of young men,"
559, Federal Reserve Bank of Minneapolis.
- Ellison, Glenn & Fudenberg, Drew, 1993.
"Rules of Thumb for Social Learning,"
Journal of Political Economy,
University of Chicago Press, vol. 101(4), pages 612-43, August.
- G. Ellison & D. Fudenberg, 2010. "Rules of Thumb for Social Learning," Levine's Working Paper Archive 435, David K. Levine.
- Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
- Ellison, Glenn & Fudenberg, Drew, 1992. "Rules of Thumb for Social Learning," IDEI Working Papers 17, Institut d'Économie Industrielle (IDEI), Toulouse.
- Allison, G. & Fudenberg, D., 1992. "Rules of Thumb for Social Learning," Working papers 92-12, Massachusetts Institute of Technology (MIT), Department of Economics.
- Hey, John D., 1981. "Are optimal search rules reasonable? and vice versa? (And does it matter anyway?)," Journal of Economic Behavior & Organization, Elsevier, vol. 2(1), pages 47-70, March.
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 2002.
"Consumption Over the Life Cycle,"
Econometric Society, vol. 70(1), pages 47-89, January.
- Pierre-Olivier Gourinchas & Jonathan A. Parker, 1999. "Consumption Over the Life Cycle," NBER Working Papers 7271, National Bureau of Economic Research, Inc.
- Gourinchas, P.O. & Parker, J.A., 1997. "Consumption Over the Life Cycle," Working papers 9722, Wisconsin Madison - Social Systems.
- Gourinchas, Pierre-Olivier & Parker, Jonathan A, 2000. "Consumption Over the Life-Cycle," CEPR Discussion Papers 2345, C.E.P.R. Discussion Papers.
- Rust, John, 1987. "Optimal Replacement of GMC Bus Engines: An Empirical Model of Harold Zurcher," Econometrica, Econometric Society, vol. 55(5), pages 999-1033, September.
- Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer;Economic Science Association, vol. 2(2), pages 107-127, December.
- Kreps, David M & Porteus, Evan L, 1978.
"Temporal Resolution of Uncertainty and Dynamic Choice Theory,"
Econometric Society, vol. 46(1), pages 185-200, January.
- David M Kreps & Evan L Porteus, 1978. "Temporal Resolution of Uncertainty and Dynamic Choice Theory," Levine's Working Paper Archive 625018000000000009, David K. Levine.
- Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
- Geweke, John & Houser, Dan & Keane, Michael, 1999. "Simulation Based Inference for Dynamic Multinomial Choice Models," MPRA Paper 54279, University Library of Munich, Germany.
- Hey, John D., 1987. "Still searching," Journal of Economic Behavior & Organization, Elsevier, vol. 8(1), pages 137-144, March.
- Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
- George F. Loewenstein, 1988. "Frames of Mind in Intertemporal Choice," Management Science, INFORMS, vol. 34(2), pages 200-214, February.
When requesting a correction, please mention this item's handle: RePEc:xrs:sfbmaa:01-34. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Carsten Schmidt)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.