American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Estimating Time Preferences from Convex Budgets
American Economic Review
vol. 102,
no. 7, December 2012
(pp. 3333–56)
Abstract
Experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision-making. Such high rates are often attributed to present-biased discounting. A well-known bias of standard measurements is the assumption of linear consumption utility. Attempting to correct this bias using measures of risk aversion to identify concavity, researchers find reasonable discounting but at the cost of exceptionally high utility function curvature. We present a new methodology for identifying time preferences, both discounting and curvature, from simple allocation decisions. We find reasonable levels of both discounting and curvature and, surprisingly, dynamically consistent time preferences. (JEL C91, D12, D81)Citation
Andreoni, James, and Charles Sprenger. 2012. "Estimating Time Preferences from Convex Budgets." American Economic Review, 102 (7): 3333–56. DOI: 10.1257/aer.102.7.3333Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D12 Consumer Economics: Empirical Analysis
- D81 Criteria for Decision-Making under Risk and Uncertainty