Extended Present Bias: A Direct Experimental Test of the Hyperbolic Discounting Hypothesis

Abstract

In accounting for the phenomenon of present bias, the hyperbolic discounting and quasi-hyperbolic discounting models have distinct predictions beyond today. We provide experimental evidence supporting diminishing rate of discounting beyond present period under careful experimental controls. In three studies involving 1378 subjects in total, the average discount rates assessed in the delayed menus are each significantly lower than those for a more proximate menu. Yet, there is no significant difference between the average discount rates assessed in the delayed menus. Taken together, our findings suggest an extended present bias hypothesis with distinct present and near term bias followed by exponential discounting into the future.

Keywords: hyperbolic discounting, quasi-hyperbolic discounting, intertemporal choice, behavioral economics

JEL Classification: C91, D03, D90