Money Earlier or Later? Simple Heuristics Explain Intertemporal Choices Better than Delay Discounting

25 Pages Posted: 16 Feb 2015

See all articles by Keith M. Marzilli Ericson

Keith M. Marzilli Ericson

Boston University - Markets, Public Policy, and Law; National Bureau of Economic Research (NBER)

John Myles White

Princeton University; Microsoft Corporation - Microsoft Research - Redmond

David Laibson

Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

Jonathan D. Cohen

Princeton University - Department of Psychology

Date Written: February 2015

Abstract

Heuristic models have been proposed for many domains of choice. We compare heuristic models of intertemporal choice, which can account for many of the known intertemporal choice anomalies, to discounting models. We conduct an out-of-sample, cross-validated comparison of intertemporal choice models. Heuristic models outperform traditional utility discounting models, including models of exponential and hyperbolic discounting. The best performing models predict choices by using a weighted average of absolute differences and relative (percentage) differences of the attributes of the goods in a choice set. We conclude that heuristic models explain time-money tradeoff choices in experiments better than utility discounting models.

Suggested Citation

Ericson, Keith M. Marzilli and White, John Myles and Laibson, David I. and Cohen, Jonathan D., Money Earlier or Later? Simple Heuristics Explain Intertemporal Choices Better than Delay Discounting (February 2015). NBER Working Paper No. w20948. Available at SSRN: https://ssrn.com/abstract=2565621

Keith M. Marzilli Ericson (Contact Author)

Boston University - Markets, Public Policy, and Law ( email )

Boston, MA
United States

National Bureau of Economic Research (NBER) ( email )

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John Myles White

Princeton University ( email )

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Microsoft Corporation - Microsoft Research - Redmond ( email )

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David I. Laibson

Harvard University - Department of Economics ( email )

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National Bureau of Economic Research (NBER) ( email )

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Jonathan D. Cohen

Princeton University - Department of Psychology ( email )

Green Hall
Princeton, NJ 08540
United States

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