Pure Time Preference or Situational? What Does the Survey of Consumer Finances Planning Horizon Variable Measure?

Abstract

Many researchers have examined the influence of the Survey of Consumer Finances (SCF) planning horizon variable on household financial behavior such as saving, assuming that it reflected the pure time preference of respondents. However, it is also possible that the variable reflects respondent situations. To examine whether the variable is situational or is a measure of a persistent preference, we used the 1992-2007 SCF datasets and examined the relationship between household characteristics and the planning horizon. The results suggest that the planning horizon variable is situational rather than a constant preference. Researchers using this variable as an explanatory variable should consider structural models rather than single equation models, on order to account for the direct and indirect effects of household characteristics.

Keywords: time preference, Survey of Consumer Finances, intertemporal preferences, saving, credit

JEL Classification: C81, D12, D14, E21