Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers

90 Pages Posted: 15 Jun 2015

See all articles by Damon Jones

Damon Jones

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies

Aprajit Mahajan

Stanford University; University of California, Berkeley - Department of Agricultural & Resource Economics; National Bureau of Economic Research (NBER)

Date Written: June 2015

Abstract

We conduct a field experiment designed to test theories of time-inconsistency, namely a "Beta-Delta" model of present bias. The experiment takes place in the context of a saving decision made by low-income tax filers who can deposit their income tax refund into an illiquid account. We find qualitative evidence consistent with present-biased preferences. The tradeoff between an earlier payment or a later one is much more skewed toward taking the early payment when the decision is made on the spot than when the decision is made in advance. We estimate a β and δ of 0.34 and 1.08 over an 8-month horizon, respectively, which translates into an annual discount rate of 164%.

Suggested Citation

Jones, Damon and Mahajan, Aprajit, Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers (June 2015). NBER Working Paper No. w21272. Available at SSRN: https://ssrn.com/abstract=2618660

Damon Jones (Contact Author)

University of Chicago - Irving B. Harris Graduate School of Public Policy Studies ( email )

1155 East 60th Street
Chicago, IL 60637
United States

Aprajit Mahajan

Stanford University ( email )

Stanford, CA 94305
United States

University of California, Berkeley - Department of Agricultural & Resource Economics ( email )

Berkeley, CA 94720
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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