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

Wendy Janssens, Berber Kramer and Lisette Swart
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Lisette Swart: VU University Amsterdam,the Netherlands

No 15-097/V, Tinbergen Institute Discussion Papers from Tinbergen Institute

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.

Keywords: Time preferences; present bias; temporal stability (search for similar items in EconPapers)
JEL-codes: C93 D03 D14 D90 G02 (search for similar items in EconPapers)
Date: 2015-08-14, Revised 2016-04-14
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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Journal Article: Be patient when measuring hyperbolic discounting: Stationarity, time consistency and time invariance in a field experiment (2017)
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