Arbitrage or Narrow Bracketing? On Using Money to Measure Intertemporal Preferences

43 Pages Posted: 5 Nov 2018

See all articles by James Andreoni

James Andreoni

University of California, San Diego (UCSD)

Christina Annette Gravert

University of Copenhagen

Michael Kuhn

University of Oregon - Department of Economics

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences

Yang Yang

Sun Yat-Sen University (SYSU) - Lingnan (University) College

Date Written: November 2018

Abstract

If experimental subjects arbitrage against market interest rates when making intertemporal allocations of cash, the data will reveal nothing about subjects' discount rates, only uncovering subjects' market interest rates. If they frame choices narrowly, market rates will not be salient and the experiment will uncover subjects' utility discount rates. We test arbitrage directly by forcing all transactions with subjects to be instant electronic bank transfers, thus making arbitrage easy and salient. We also employ four decision frames to test alternative hypotheses. Our evidence contradicts arbitrage, supports money as a valid reward, and suggests framing as a correlate with present bias.

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Suggested Citation

Andreoni, James and Gravert, Christina Annette and Kuhn, Michael and Saccardo, Silvia and Yang, Yang, Arbitrage or Narrow Bracketing? On Using Money to Measure Intertemporal Preferences (November 2018). NBER Working Paper No. w25232. Available at SSRN: https://ssrn.com/abstract=3278532

James Andreoni (Contact Author)

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

HOME PAGE: http://econ.ucsd.edu/~jandreon/

Christina Annette Gravert

University of Copenhagen ( email )

Nørregade 10
Copenhagen, DK-1165
Denmark

Michael Kuhn

University of Oregon - Department of Economics ( email )

Eugene, OR 97403
United States

HOME PAGE: http://pages.uoregon.edu/mkuhn

Silvia Saccardo

Carnegie Mellon University, Department of Social and Decision Sciences ( email )

Pittsburgh, PA 15213-3890
United States

Yang Yang

Sun Yat-Sen University (SYSU) - Lingnan (University) College ( email )

Guangzhou
China

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