Be Patient When Measuring Hyperbolic Discounting: Stationarity, Time Consistency and Time Invariance in a Field Experiment

51 Pages Posted: 6 Aug 2015 Last revised: 18 Apr 2016

See all articles by Wendy Janssens

Wendy Janssens

VU University Amsterdam - Department of Development Economics

Berber Kramer

International Food Policy Research Institute (IFPRI)

Lisette Swart

Tinbergen Institute; VU University Amsterdam - Department of Economics

Date Written: April 14, 2016

Abstract

Most experimental evidence of hyperbolic discounting is based on violations of either stationarity or time consistency. Stationarity is violated when intertemporal choices differ for trade-offs in the near versus the more distant future. Time consistency on the other hand is violated if the optimal allocation for specific dates changes over time. Both types of choice reversals may however also result from time-varying discount rates. Hyperbolic discounting is an unambiguous explanation for choice reversals only if individuals simultaneously violate both stationarity and time consistency. Our field experiment examines the extent to which this is the case. At different points in time, the same participants allocated a future gift over sooner-smaller and later-larger rewards with varying front-end delays. We find that most violations of time consistency do not coincide with violations of stationarity. Random noise in decision-making alone does not explain this finding. Instead, we find a significant association between individual violations and changes in household wealth, in particular for participants with less access to credit. We conclude that in a context of liquidity constraints, eliciting violations of either stationarity or time consistency alone is insufficient to identify hyperbolic discounting.

Keywords: Time preferences, hyperbolic discounting, temporal stability, liquidity constraints

JEL Classification: C93, D03, D14, D90, G02

Suggested Citation

Janssens, Wendy and Kramer, Berber and Swart, Lisette, Be Patient When Measuring Hyperbolic Discounting: Stationarity, Time Consistency and Time Invariance in a Field Experiment (April 14, 2016). Available at SSRN: https://ssrn.com/abstract=2640460 or http://dx.doi.org/10.2139/ssrn.2640460

Wendy Janssens

VU University Amsterdam - Department of Development Economics ( email )

Netherlands

Berber Kramer (Contact Author)

International Food Policy Research Institute (IFPRI) ( email )

1201 Eye St, NW,
Washington, DC 20005
United States

Lisette Swart

Tinbergen Institute ( email )

Burg. Oudlaan 50
Rotterdam, 3062 PA
Netherlands

VU University Amsterdam - Department of Economics ( email )

De Boelelaan 1105
1081 HV Amsterdam
Netherlands

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
71
Abstract Views
608
rank
386,162
PlumX Metrics