Dynamically Inconsistent Preferences and Money Demand

Emanuele Millemaci () and Robert Waldmann ()
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Emanuele Millemaci: Faculty of Economics, University of Rome "Tor Vergata", http://www.ceistorvergata.it

No 129, CEIS Research Paper from Tor Vergata University, CEIS

Abstract: This paper focuses on two main issues. First, we find that, on average, households’ discount rates decline. This implies dynamically inconsistent preferences. Second, we calculate an indicator of the degree of dynamic inconsistency that may help us to understand how households overcome their self-control problems. We use a micro dataset containing households’ reports on the compensation for receiving hypothetical rewards with delays. We find that individuals with more severely dynamicly inconsistent preferences on average hold a statistically significantly lower share of their total wealth in checking accounts. A possible interpretation is that subjects use precommitment strategies to limit their temptation to consume immediately.

Keywords: Behavioral Economics; Intertemporal choice; Hyperbolic Discounting; Dynamic Inconsistency; Precommitment (search for similar items in EconPapers)
JEL-codes: D11 D12 D90 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2008-09-09, Revised 2008-09-09
New Economics Papers: this item is included in nep-cba and nep-dcm
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