Time preferences over the life cycle

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

No 267, SAFE Working Paper Series from Leibniz Institute for Financial Research SAFE

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.

Keywords: Time Preferences; Preference Stability; Age; Discount Rates (search for similar items in EconPapers)
JEL-codes: D01 D12 D91 J10 (search for similar items in EconPapers)
Date: 2020, Revised 2020
New Economics Papers: this item is included in nep-age
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:zbw:safewp:267

DOI: 10.2139/ssrn.3547301

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