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High-income consumers may be less hyperbolic when discounting the future

Sergio Da Silva (), Dinorá De Faveri (), Ana Correa () and Raul Matsushita ()
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Dinorá De Faveri: State University of Santa Catarina
Ana Correa: Federal University of Santa Catarina
Raul Matsushita: Department of Statistics, University of Brasilia

Economics Bulletin, 2017, vol. 37, issue 3, 1421-1434

Abstract: We investigate to what extent high-income consumers are less hyperbolic than low-income consumers using a sample of 216 bank customers and 796 undergraduates. We assess whether participants who scored lower on a test of cognitive ability were also those who tended to discount the future hyperbolically. Our problem is then to find whether lower cognitive ability translates into hyperbolic discounting. The students had higher implicit discount rates, i.e. they were more hyperbolic, for both low stakes and high stakes when long delays were involved, a result in line with the literature. The undergraduates tended to be hyperbolic regardless of stake size, whereas the bank customers tended to be hyperbolic only when high stakes were involved. This makes sense, as high-income consumers should be less sensitive to low stakes. The bank clients showed superior cognitive ability and this may explain why their System 2 could be more capable of overriding cognitive biases, such as the present bias.

Keywords: hyperbolic discounting; cognitive ability; high-income consumers; behavioral economics (search for similar items in EconPapers)
JEL-codes: D9 D1 (search for similar items in EconPapers)
Date: 2017-07-02
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