Measuring time preferences

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

Behavioral Economics: Past, Present, Future

Behavioral economics increases the explanatory power of economics by providing it with more realistic psychological foundations. This book consists of representative recent articles in behavioral economics. This chapter is intended to provide an introduction to the approach and methods of behavioral economics, and to some of its major findings, applications, and promising new directions. It also seeks to fill some unavoidable gaps in the chapters’ coverage of topics

Disentangling Intertemporal Substitution and Risk Aversion under the Expected Utility Theorem

A disturbing feature of the conventional objective function for intertemporal decisions under uncertainty is that the agent's attitudes toward intertemporal substitution and risk aversion are entangled. This paper shows that, in contrast to common perception, the two attitudes can be completely disentangled under the expected utility theorem (EUT) by modeling each of them successively in two steps. The conventional form is nested as a special case where the functions describing the two attitudes are identical. The proposed framework requires only the standard axioms of the EUT, in addition to a regulatory assumption. It is flexible in accommodating different combinations of the two attitudes, indifferent to the timing of resolution of uncertainty, intuitive to interpret, and extendable to multiple goods. The objective function under the proposed framework is time inconsistent according to Strotz's (1955) definition. I argue that Strotz's notion of time consistency is misguided. It is constructed based on a priori assumption that the agent should continuously forget history as time progresses. But this means the agent is either chronically amnesiac or self-contradictory. To be truly consistent, the agent should have one and only one objective function, determined at birth, throughout his entire life. As history unfolds, the agent updates his information set, but not his objective function

Deriving time discounting correction factors for TTO tariffs

The Time Tradeoff (TTO) method is a popular method for valuing health state utilities and is frequently used in economic evaluations. However, this method produces utilities that are distorted by several biases. One important bias entails the failure to incorporate time discounting. This paper aims to measure time discounting for health outcomes in a sample representative for the general population. In particular, we estimate TTO scores alongside time discounting in order to derive a set of correction factors that can be employed to correct raw TTO scores for the downward bias caused by time discounting. We find substantial positive correction factors, which are increasing with the severity of the health state. Furthermore, higher discounting is found when using more severe health states in the discounting elicitation task. More research is needed to further develop discount rate elicitation procedures and test their validity, especially in general public samples. Moreover, future research should investigate the correction of TTO score for other biases as well, such as loss aversion, and to develop a criterion to test the external validity of TTO scores.Discounting; QALY model; Time Tradeoff; Utility Measurement

Does Fertility Status Influence Impulsivity and Risk Taking in Human Females? Adaptive Influences on Intertemporal Choice and Risky Decision Making

Informed by the research on adaptive decision making in other animal species, this study investigated human females’ intertemporal and risky choices across the ovulatory cycle. We tested the hypothesis that at peak fertility, women who are exposed to environments that signal availability of higher quality mates (by viewing images of attractive males), become more impulsive and risk-seeking in economic decision tasks. To test this, we collected intertemporal and risky choice measures before and after exposure to images of either attractive males or neutral landscapes both at peak and low fertility conditions. The results showed an interaction between women’s fertility status and image type, such that women at peak fertility viewing images of attractive men chose the smaller, sooner monetary reward option less than women at peak fertility viewing neutral images. Neither fertility status nor image type influenced risky choice. Thus, though exposure to images of men altered intertemporal choices at peak fertility, this occurred in the opposite direction than predicted—i.e., women at peak fertility became less impulsive. Nevertheless, the results of the current study provide evidence for shifts in preferences over the ovulatory cycle and opens future research on economic decision making

Does Fertility Status Influence Impulsivity and Risk Taking in Human Females? Adaptive Influences on Intertemporal Choice and Risky Decision Making

Informed by the research on adaptive decision making in other animal species, this study investigated human females’ intertemporal and risky choices across the ovulatory cycle. We tested the hypothesis that at peak fertility, women who are exposed to environments that signal availability of higher quality mates (by viewing images of attractive males), become more impulsive and risk-seeking in economic decision tasks. To test this, we collected intertemporal and risky choice measures before and after exposure to images of either attractive males or neutral landscapes both at peak and low fertility conditions. The results showed an interaction between women’s fertility status and image type, such that women at peak fertility viewing images of attractive men chose the smaller, sooner monetary reward option less than women at peak fertility viewing neutral images. Neither fertility status nor image type influenced risky choice. Thus, though exposure to images of men altered intertemporal choices at peak fertility, this occurred in the opposite direction than predicted—i.e., women at peak fertility became less impulsive. Nevertheless, the results of the current study provide evidence for shifts in preferences over the ovulatory cycle and opens future research on economic decision making

Intertemporal Correlation Aversion—A Model-Free Measurement

Decisions with risky consequences at multiple points in time are driven not only by risk attitudes and time preferences but also by attitudes toward intertemporal correlation (i.e., the correlation between outcomes at different points in time). This paper proposes a model-free method to measure degrees of intertemporal correlation aversion. We disentangle attitudes toward positive and negative intertemporal correlation, which can differ if expected intertemporal utility is violated. In an experiment, subjects on average exhibited correlation aversion both for lotteries with positive correlation and for lotteries with negative correlation. That is, they disliked positive correlations and liked negative correlations. At the individual level, we found heterogeneity and remarkably, many subjects being insensitive to intertemporal correlations. Moreover, for most subjects, expected intertemporal utility was violated because attitudes toward positive and negative correlation differed.</p