Dynamically Inconsistent Preferences and Money Demand

18 Pages Posted: 7 Sep 2008

See all articles by Emanuele Millemaci

Emanuele Millemaci

University of Messina - Department of Economics, Business, Environmental Sciences and Quantitative Methods (SEAM)

Robert Waldmann

Universita di Roma Tor Vergata; National Bureau of Economic Research (NBER)

Date Written: September 5, 2008

Abstract

This paper focuses on two main issues. First, we find that, on average, households' discount rates decline. This implies dynamically inconsistent preferences. Second, we calculate an indicator of the degree of dynamic inconsistency that may help us to understand how households overcome their self-control problems. We use a micro dataset containing households' reports on the compensation for receiving hypothetical rewards with delays. We find that individuals with more severely dynamically inconsistent preferences on average hold a statistically significantly lower share of their total wealth in checking accounts. A possible interpretation is that subjects use precommitment strategies to limit their temptation to consume immediately.

Keywords: Behavioral Economics, Intertemporal choice, Hyperbolic Discounting, Dynamic Inconsistency, Precommitment

JEL Classification: D11, D12, D90

Suggested Citation

Millemaci, Emanuele and Waldmann, Robert, Dynamically Inconsistent Preferences and Money Demand (September 5, 2008). CEIS Working Paper No. 129. Available at SSRN: https://ssrn.com/abstract=1263950 or http://dx.doi.org/10.2139/ssrn.1263950

Emanuele Millemaci (Contact Author)

University of Messina - Department of Economics, Business, Environmental Sciences and Quantitative Methods (SEAM) ( email )

Piazza Pugliatti, 1
Messina, 98122
Italy

Robert Waldmann

Universita di Roma Tor Vergata ( email )

Piazzale Aldo Moro 5
Roma, Rome 00185
Italy

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
50
Abstract Views
449
PlumX Metrics
!

Under construction: SSRN citations will be offline until July when we will launch a brand new and improved citations service, check here for more details.

For more information