1,217 research outputs found

    Learning and Visceral Temptation in Dynamic Savings Experiments

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    In models of optimal savings with income uncertainty and habit formation, people should save early to create a buffer stock, to cushion bad income draws and limit the negative internality from habit formation. In experiments in this setting, people save too little initially, but learn to save optimally within four repeated lifecycles, or 1-2 lifecycles with “social learning.” Using beverage rewards (cola) to create visceral temptation, thirsty subjects who consume immediately overspend compared to subjects who only drink after time delay. The relative overspending of immediate-consumption subjects is consistent with hyperbolic discounting and dual-self models. Estimates of the present-bias choices are β=0.6-0.7, which are consistent with other studies (albeit over different time horizons)

    Measuring time preferences

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    We review research that measures time preferences—i.e., preferences over intertemporal tradeoffs. We distinguish between studies using financial flows, which we call “money earlier or later” (MEL) decisions and studies that use time-dated consumption/effort. Under different structural models, we show how to translate what MEL experiments directly measure (required rates of return for financial flows) into a discount function over utils. We summarize empirical regularities found in MEL studies and the predictive power of those studies. We explain why MEL choices are driven in part by some factors that are distinct from underlying time preferences.National Institutes of Health (NIA R01AG021650 and P01AG005842) and the Pershing Square Fund for Research in the Foundations of Human Behavior

    Learning and Visceral Temptation in Dynamic Saving Experiments

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    This paper tests two explanations for apparent undersaving in life cycle models: bounded rationality and a preference for immediacy. Each was addressed in a separate experimental study. In the first study, subjects saved too little initially—providing evidence for bounded rationality—but learned to save optimally within four repeated life cycles. In the second study, thirsty subjects who consume beverage sips immediately, rather than with a delay, show greater relative overspending, consistent with quasi-hyperbolic discounting models. The parameter estimates of overspending obtained from the second study, but not the first, are in range of several empirical studies of saving (with an estimated β = 0.6–0.7)

    Dynamic Consistency in Denmark: A Longitudinal Field Experiment

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    Evidence that individuals have dynamically consistent preferences is usually generated by studying the discount rates of the individual over different horizons, but where those rates are elicited at a single point in time. If these elicited discount rates vary by horizon the individual is typically claimed to have preferences that imply a dynamic inconsistency, although this inference requires additional assumptions such as intertemporal separability. However, what one really wants to know is if the same subject has the same discount rate function when that individual is asked at a later point in time. Such panel tests then require than one allow for possible changes in the states of nature that the subject faces, since they may confound any in-sample comparisons of discount rate functions at different points in time. We report the results of a large-scale panel experiment undertaken in the field that allows us to examine this issue. In June 2003 we elicited subjective discount rates from 253 subjects, representative of the adult Danish population. Between September 2003 and November 2004 we re-visited 97 of these subjects and repeated these tasks. In each visit we also elicited information on their individual characteristics, as well as their expectations about the state of their own economic situation and macroeconomic variables. We find evidence in favor of dynamic consistency.

    Eliciting trade-offs between water charges and service benefits in Scotland. ESRI Working Paper No. 655 March 2020

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    If it is the responsibility of a regulatory body to decide where to prioritise future investment, then it is important to understand the priorities of the citizenry it represents. This paper, in collaboration with the OECD and the Scottish water industry, presents the results of an online (n= 500) and face-to-face laboratory (n= 99) study that utilised experimental behavioural science to explore how Scottish citizens trade-off costs and potential improvements to their water service. Participants’ priorities for investment were elicited using a novel ‘slider task’ methodology that forced them to explicitly consider the trade-offs required to allocate limited resources across multiple possible water service improvements. The provision of additional cost and timing information was systematically varied. Results suggest that citizens are increasingly accepting of price rises when provided this information. Results also suggest that citizens’ priorities for specific improvements are not sensitive to the costs of different improvements but are sensitive to the lengths of time improvements take to be made. Findings from this study are designed to inform the regulatory process of the Scottish water industry and highlight the potential role of behavioural science in regulation more generally

    Crime, Punishment, and Myopia

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    Economic theory predicts that increasing the severity of punishments will deter criminal behavior by raising the expected price of committing crime. This implicit price can be substantially raised by making prison sentences longer, but only if offenders' discount rates are relatively low. We use a large sample of felony arrests to measure the deterrence effect of criminal sanctions. We exploit the fact that young offenders are legally treated as adults--and face longer lengths of incarceration--the day they turn 18. Sufficiently patient individuals should therefore significantly lower their offending rates immediately upon turning 18. The small behavioral responses that we estimate suggest that potential offenders are extremely impatient, myopic, or both.

    Anticipatory Feelings in Intertemporal Choice on Consumption: A Dynamic Experiment

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    Following the evaluation of anticipatory feelings in Scitovsky\u2019s Joyless Economy, we explored a specific interpretation of reversals in intertemporal choice. Anticipatory feelings can be explained as the feeling experienced by the agent while awaiting an upcoming event. We adopted a dynamic experiment where individuals made decisions of consumption at multiple points of time: three experimental sessions in three different dates at two-week intervals. We elicited the initial plans of the same sample in three different sessions over a one-month period and tracked how they implemented their plans as the anticipated event drew closer. The paper innovates with respect to the literature on intertemporal decision making in that the motivation for a varying discount rate, caused by anticipation or procrastination, has been elicited with both monetary and non-monetary (consumption) incentives and within a dynamic setting. We found that anticipatory feeling is a significant possible explanation behind choice reversal. The results remained significant after controlling the other explanatory factors such as risk aversion, uncertainty and time inconsistency
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