Estimating Dynamic Discrete Choice Models with Hyperbolic Discounting, with an Application to Mammography Decisions

Abstract

We extend the semi-parametric estimation method for dynamic discrete choice models using Hotz and Miller’s (1993) conditional choice probability (CCP) approach to the setting where individuals may have hyperbolic discounting time preferences and may be naive about their time inconsistency. We illustrate the proposed estimation method with an empirical application of adult women’s decisions to undertake mammography to evaluate the importance of present bias and naivety in the under-utilization of this preventive health care. Our results show evidence for both present bias and naivety.

Keywords: Time Inconsistent Preferences, Intrapersonal Games, Dynamic Discrete Choices, Preventive Care

JEL Classification: C14, I1