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Time preferences over the life cycle

Author

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  • Kureishi, Wataru
  • Paule-Paludkiewicz, Hannah
  • Tsujiyama, Hitoshi
  • Wakabayashi, Midori

Abstract

We study whether and how time preferences change over the life cycle, exploiting representative long-term panel data. In order to disentangle age effects from cohort and period factors, we estimate individual fixed-effects models, substituting period effects with period specific determinants of time preferences. We find that discount rates linearly decrease over the life cycle. This pattern holds when adjusting for the curvature of the utility function. We show the quantitative importance of this finding by demonstrating that a canonical life-cycle model with decreasing discounting significantly improves its fit to consumption and asset data relative to the model with constant discounting.

Suggested Citation

  • Kureishi, Wataru & Paule-Paludkiewicz, Hannah & Tsujiyama, Hitoshi & Wakabayashi, Midori, 2020. "Time preferences over the life cycle," SAFE Working Paper Series 267, Leibniz Institute for Financial Research SAFE.
  • Handle: RePEc:zbw:safewp:267
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    References listed on IDEAS

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    More about this item

    Keywords

    Time Preferences; Preference Stability; Age; Discount Rates;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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