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Individual preferences and the exponential growth bias

C. Königsheim, M. Lukas and M. Nöth

Journal of Economic Behavior & Organization, 2018, vol. 145, issue C, 352-369

Abstract: The exponential growth bias (EGB) refers to individuals’ underestimation of the effects of exponential growth and has been shown to affect important financial decisions such as retirement savings. We develop and test a novel experimental design to evaluate the magnitude of the EGB based on multiple price lists. Our design simultaneously elicits the EGB as well as subjects’ utility curvatures and time preferences. Allowing for non-linear utility, we structurally estimate the magnitude of the EGB as about half as large as when linear utility is assumed. These results shed light on the relationship between individual preferences and the EGB.

Keywords: Time preferences; Exponential growth bias; Multiple price lists; Maximum likelihood estimation (search for similar items in EconPapers)
JEL-codes: D03 D91 C91 (search for similar items in EconPapers)
Date: 2018
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Handle: RePEc:eee:jeborg:v:145:y:2018:i:c:p:352-369