Stability of Time Preferences

44 Pages Posted: 22 Feb 2010

See all articles by Stephan Meier

Stephan Meier

Federal Reserve Bank of Boston; IZA Institute of Labor Economics; Columbia Business School - Management

Charles Sprenger

Federal Reserve Bank of Boston

Abstract

Individuals frequently face intertemporal decisions. For the purposes of economic analysis, the preference parameters assumed to govern these decisions are generally considered to be stable economic primitives. However, evidence on the stability of time preferences is notably lacking. In a large field study conducted over two years with about 1,400 individuals, time preferences are elicited using incentivized choice experiments. The aggregate distributions of discount factors and the proportion of present-biased individuals are found to be unchanged over the two years. At the individual level, the one year correlations in measured time preference parameters are found to be high by existing standards, though some individuals change their intertemporal choices potentially indicating unstable preferences. By linking time preference measures to tax return data, we show that identified instability is uncorrelated with socio-demographics and changes to income, future liquidity, employment and family composition.

Keywords: experimental economics, time preferences, preference stability

JEL Classification: C93, D01, D03, D11, D91

Suggested Citation

Meier, Stephan and Sprenger, Charles, Stability of Time Preferences. IZA Discussion Paper No. 4756, Available at SSRN: https://ssrn.com/abstract=1556544

Stephan Meier (Contact Author)

Federal Reserve Bank of Boston ( email )

600 Atlantic Avenue
Boston, MA 02210
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Columbia Business School - Management ( email )

3022 Broadway
New York, NY 10027
United States

Charles Sprenger

Federal Reserve Bank of Boston ( email )

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