Intertemporal choice bracketing and the measurement of time preferences

Yonas Alem, John Loeser () and Aprajit Mahajan
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John Loeser: Development Impact Evaluation, World Bank

No 24-9, EfD Discussion Paper from Environment for Development, University of Gothenburg

Abstract: The implications of commonly used money earlier or later (MEL) games for intertemporal behavior depend critically upon subjects’ choice bracketing. If subjects bracket narrowly, responses reflect preferences independent of subjects’ financial environment. Alternatively, if subjects bracket broadly, responses reflect subjects’ marginal returns to investment. We test both hypotheses in a lab-in-the-field experiment, which involves repeated MEL games, a large unconditional cash transfer, and an illiquid savings product. Subjects do not narrowly bracket – randomized cash transfers induce greater patience in MEL choices. Subjects do not broadly bracket either – they fail to arbitrage across equivalent MEL and savings opportunities. We provide a conceptual framework and present evidence that narrowly bracketing subjects drive the predictive power of MEL outcomes for financial choices, justifying the common practice of interpreting MEL choices as a proxy for time preferences rather than financial environment.

Keywords: Time preferences; narrow bracketing; broad bracketing (search for similar items in EconPapers)
JEL-codes: C93 D03 D11 D90 (search for similar items in EconPapers)
Pages: 55 pages
Date: 2024-06-24
New Economics Papers: this item is included in nep-cbe, nep-dcm and nep-exp
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