Interpreting Time Horizon Effects in Inter-Temporal Choice

48 Pages Posted: 10 Mar 2012

See all articles by Thomas J. Dohmen

Thomas J. Dohmen

Institute for the Study of Labor (IZA); Maastricht University - Business Investment Research Center (BIRC)

Armin Falk

briq - Institute on Behavior & Inequality

David Huffman

IZA Institute of Labor Economics; Swarthmore College

Uwe Sunde

Ludwig Maximilian University of Munich (LMU)

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Abstract

We compare different designs that have been used to test for an impact of time horizon on discounting, using real incentives and two representative data sets. With the most commonly used type of design we replicate the typical finding of declining (hyperbolic) discounting, but with other designs find constant or increasing discounting. As a whole, the data are not consistent with any of these usual candidate discounting assumptions, and they also imply a violation of transitivity. The results have implications for interpreting previous evidence, and pose an important puzzle for understanding inter-temporal choice.

Keywords: time preference, hyperbolic discounting, self-control, dynamic inconsistency, intransitivity

JEL Classification: D01, D90, D03, E21

Suggested Citation

Dohmen, Thomas and Falk, Armin and Huffman, David and Sunde, Uwe, Interpreting Time Horizon Effects in Inter-Temporal Choice. IZA Discussion Paper No. 6385. Available at SSRN: https://ssrn.com/abstract=2019437

Thomas Dohmen (Contact Author)

Institute for the Study of Labor (IZA) ( email )

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

Maastricht University - Business Investment Research Center (BIRC) ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands
+31-43-388 3832 (Phone)
+31-43-388 4856 (Fax)

Armin Falk

briq - Institute on Behavior & Inequality

Schaumburg-Lippe-Straße 5-9
Bonn, 53113
Germany

HOME PAGE: http://www.briq-institute.org/

David Huffman

IZA Institute of Labor Economics ( email )

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

Swarthmore College

500 College Ave
Swarthmore, PA 19081
United States

Uwe Sunde

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

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