Present-Biased Preferences and Money Demand

Emanuele Millemaci and Robert Waldmann ()

De Economist, 2016, vol. 164, issue 2, No 4, 187-207

Abstract: Abstract Participants in the De Nederlandsche Bank Household Survey were asked questions allowing to elicit subjective discount factors over different time horizons. The answers of most participants indicate present-bias as they show a higher annualized nominal rate of return for a 3-month delay than for a 12-month delay. One way to deal with one’s present-bias problem is to impose limits on future spending by holding wealth in non-liquid assets. We therefore predict that agents with more severe present-bias problems hold a lower share of their wealth as money. Our data provide statistically significant evidence in support of this prediction.

Keywords: Behavioral economics; Intertemporal choice; Non-exponential discounting; Pre-commitment; Present-bias (search for similar items in EconPapers)
JEL-codes: D11 D12 D90 (search for similar items in EconPapers)
Date: 2016
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DOI: 10.1007/s10645-016-9274-3

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