American Economic Review: Insights
ISSN 2640-205X (Print) | ISSN 2640-2068 (Online)
Coordination with Differential Time Preferences: Experimental Evidence
American Economic Review: Insights
vol. 6,
no. 4, December 2024
(pp. 543–57)
Abstract
The experimental literature on repeated games has largely focused on settings where players discount the future identically. In applications, however, interactions often occur between players whose time preferences differ. We study experimentally the effects of discounting differentials in infinitely repeated coordination games. In our data, differential discount factors play two roles. First, they provide a coordination anchor: more impatient players get higher payoffs first. Introducing even small discounting differentials reduces coordination failures significantly. Second, with pronounced discounting differentials, intertemporal trades are prevalent: impatient players get higher payoffs for an initial phase and patient players get higher payoffs in perpetuity afterward.Citation
Agranov, Marina, Jeongbin Kim, and Leeat Yariv. 2024. "Coordination with Differential Time Preferences: Experimental Evidence." American Economic Review: Insights, 6 (4): 543–57. DOI: 10.1257/aeri.20230234Additional Materials
JEL Classification
- C72 Noncooperative Games
- C92 Design of Experiments: Laboratory, Group Behavior
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- D25 Intertemporal Firm Choice: Investment, Capacity, and Financing