Time Preferences over the Life Cycle
40 Pages Posted: 5 Mar 2020 Last revised: 29 Jun 2020
Date Written: June 1, 2020
We study whether and how time preferences change over the life cycle, exploiting representative long-term panel data. We estimate the age patterns of discount rates from age 25 to 80. In order to identify age effects, we have to disentangle them from cohort and period factors. We address this identification problem by estimating individual fixed effects models, where we substitute period effects with determinants of time preferences that depend on calendar years. We find that discount rates decrease with age and the decline is remarkably linear over the life cycle. Using a joint elicitation of time and risk preferences, we also observe qualitatively and quantitatively similar age patterns of discount rates that are adjusted for curvature of utility function.
Keywords: Time Preferences; Preference Stability; Age; Discount Rates
JEL Classification: D01, D12, D91, J10
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