Estimating Present Bias and Sophistication over Effort and Money

Claudia Cerrone, Anujit Chakraborty, Hyok Jung Kim and Leonhard Lades
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Leonhard Lades: Department of Economics, University of California Davis

No 359, Working Papers from University of California, Davis, Department of Economics

Abstract: We design and conduct a real-effort experiment that jointly estimates present bias and sophistication, without assuming identical present bias and sophistication across money and effort domains. We explain and empirically demonstrate how assuming identical sophistication for money and effort (as in Augenblick et al., 2019) can bias the estimates of key parameters. On average, participants chose to (predicted to) complete 14% (10%) fewer tasks on the same day than on a future day, leading to an estimated present bias βₑ over effort of 0.70–0.79, and an estimated sophistication β̂ₑ of 0.80–0.88. For money, aggregate present bias βₘ is near zero, but substantial heterogeneity exists, with roughly equal numbers of participants exhibiting present bias and future bias. At the individual level, about three quarters of all participants correctly anticipate the direction of their bias in both domains, even if not its full magnitude.

Keywords: present bias; sophistication; beliefs; experiment; real effort task; experiment (search for similar items in EconPapers)
JEL-codes: C91 D81 D90 (search for similar items in EconPapers)
Date: 2023-11-06
New Economics Papers: this item is included in nep-dcm, nep-exp, nep-lma and nep-upt
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