Discounting financial literacy: time preferences and participation in financial education programs

Many policy makers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the apparent importance of being financially informed? This paper presents results of a field study linking individual decisions to acquire personal financial information to a critical, and normally unobservable, characteristic: time preferences. We offered a short, free credit counseling and information program to more than 870 individuals. About 55 percent chose to participate. Independently, we elicited time preferences using incentivized choice experiments both for individuals who selected into the program and those who did not. Our results show that the two groups differ sharply in their measured discount factors. Individuals who choose to acquire personal financial information through the credit counseling program discount the future less than individuals who choose not to participate. Our results suggest that individual time preference may explain who will and who will not choose to become financially literate. This has implications for the validity of studies evaluating voluntary financial education programs and policy efforts focused on expanding financial education

Stability of time preferences

Individuals frequently face intertemporal decisions. For the purposes of economic analysis, the preference parameters assumed to govern these decisions are generally considered to be stable economic primitives. However, evidence on the stability of time preferences is notably lacking. In a large field study conducted over two years with about 1,400 individuals, time preferences are elicited using incentivized choice experiments. The aggregate distributions of discount factors and the proportion of present-biased individuals are found to be unchanged over the two years. At the individual level, the one year correlations in measured time preference parameters are found to be high by existing standards, though some individuals change their intertemporal choices potentially indicating unstable preferences. By linking time preference measures to tax return data, we show that identified instability is uncorrelated with socio-demographics and changes to income, future liquidity, employment and family composition

Time Discounting Predicts Creditworthiness

In the recent subprime crisis, many individuals defaulted on their loans. Though the institutional sources of defaulting and delinquencies were much debated in the aftermath of the crisis, much less attention was given to individual differences in defaulting behavior. How do individuals decide whether to repay borrowed money? The decision to default can be viewed as an intertemporal choice, as defaulting provides monetary benefits in the near future and costs in the more distant future (Chatterjee, Corbae, Nakajima, & Rios-Rull, 2007; Fehr, 2002). Therefore, interpersonal differences in time discounting may influence defaulting. Psychological research shows substantial heterogeneity in time discounting and often large degrees of time discounting, especially if immediate rewards are available (e.g., Frederick, Loewenstein, & O’Donoghue, 2002; Kirby & Herrnstein, 1995). Measured time discounting is predictive of life outcomes such as scholastic achievement and health-related behavior (Chabris, Laibson, Morris, Schuldt, & Taubinsky, 2008; Chapman, 1996; Eigsti et al., 2006; Kirby, Petry, & Bickel, 1999; Mischel, Shoda, & Rodriguez, 1989). In this report, we document that the degree of time discounting predicts repayment as measured using the standard U.S. metric of creditworthiness, an individual’s Fair Isaac Corporation (FICO) credit score. The component of time discounting previously found to be associated with deliberate decision making (Figner et al., 2010; McClure, Laibson, Loewenstein, & Cohen, 2004) is more predictive of creditworthiness than is the immediacy-bias component associated with affective or impulsive decision making. The findings indicate that time discounting predicts creditworthiness and that repayment decisions may be associated with deliberative, rather than affective, processes

Discounting financial literacy: Time preferences and participation in financial education programs

Many policymakers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the benefits of being financially informed? This paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic: time preferences. We elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered. Our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not. The results can be interpreted as non-participants discount the benefits of being financially literate more

Temporal Stability of Time Preferences

The preferences assumed to govern intertemporal trade-offs are generally considered to be stable economic primitives, though evidence on this stability is notably lacking. We present evidence from a large field study conducted over two years, with around 1,400 individuals using incentivized intertemporal choice experiments. Aggregate choice profiles and corresponding estimates of discount parameters are unchanged over the two years and individual correlations through time are high by existing standards. However, some individuals show signs of instability. By linking experimental measures to administrative tax records, we showthat identified instability is uncorrelated with both levels and changes in sociodemographic variables

Time Discounting Predicts Creditworthiness

In the recent subprime crisis, many individuals defaulted on their loans. Though the institutional sources of defaulting and delinquencies were much debated in the aftermath of the crisis, much less attention was given to individual differences in defaulting behavior. How do individuals decide whether to repay borrowed money? The decision to default can be viewed as an intertemporal choice, as defaulting provides monetary benefits in the near future and costs in the more distant future (Chatterjee, Corbae, Nakajima, & Rios-Rull, 2007; Fehr, 2002). Therefore, interpersonal differences in time discounting may influence defaulting. Psychological research shows substantial heterogeneity in time discounting and often large degrees of time discounting, especially if immediate rewards are available (e.g., Frederick, Loewenstein, & O’Donoghue, 2002; Kirby & Herrnstein, 1995). Measured time discounting is predictive of life outcomes such as scholastic achievement and health-related behavior (Chabris, Laibson, Morris, Schuldt, & Taubinsky, 2008; Chapman, 1996; Eigsti et al., 2006; Kirby, Petry, & Bickel, 1999; Mischel, Shoda, & Rodriguez, 1989). In this report, we document that the degree of time discounting predicts repayment as measured using the standard U.S. metric of creditworthiness, an individual’s Fair Isaac Corporation (FICO) credit score. The component of time discounting previously found to be associated with deliberate decision making (Figner et al., 2010; McClure, Laibson, Loewenstein, & Cohen, 2004) is more predictive of creditworthiness than is the immediacy-bias component associated with affective or impulsive decision making. The findings indicate that time discounting predicts creditworthiness and that repayment decisions may be associated with deliberative, rather than affective, processes

Temporal Stability of Time Preferences

The preferences assumed to govern intertemporal trade-offs are generally considered to be stable economic primitives, though evidence on this stability is notably lacking. We present evidence from a large field study conducted over two years, with around 1,400 individuals using incentivized intertemporal choice experiments. Aggregate choice profiles and corresponding estimates of discount parameters are unchanged over the two years and individual correlations through time are high by existing standards. However, some individuals show signs of instability. By linking experimental measures to administrative tax records, we showthat identified instability is uncorrelated with both levels and changes in sociodemographic variables

Discounting financial literacy: Time preferences and participation in financial education programs

Many policymakers and economists argue that financial literacy is key to financial well-being. But why do many individuals remain financially illiterate despite the benefits of being financially informed? This paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic: time preferences. We elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered. Our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not. The results can be interpreted as non-participants discount the benefits of being financially literate more

Validation of Kalman Filter alignment algorithm with cosmic-ray data using a CMS silicon strip tracker endcap

A Kalman Filter alignment algorithm has been applied to cosmic-ray data. We discuss the alignment algorithm and an experiment-independent implementation including outlier rejection and treatment of weakly determined parameters. Using this implementation, the algorithm has been applied to data recorded with one CMS silicon tracker endcap. Results are compared to both photogrammetry measurements and data obtained from a dedicated hardware alignment system, and good agreement is observed.Comment: 11 pages, 8 figures. CMS NOTE-2010/00

Evaluation and comparison of mammalian subcellular localization prediction methods

BACKGROUND: Determination of the subcellular location of a protein is essential to understanding its biochemical function. This information can provide insight into the function of hypothetical or novel proteins. These data are difficult to obtain experimentally but have become especially important since many whole genome sequencing projects have been finished and many resulting protein sequences are still lacking detailed functional information. In order to address this paucity of data, many computational prediction methods have been developed. However, these methods have varying levels of accuracy and perform differently based on the sequences that are presented to the underlying algorithm. It is therefore useful to compare these methods and monitor their performance. RESULTS: In order to perform a comprehensive survey of prediction methods, we selected only methods that accepted large batches of protein sequences, were publicly available, and were able to predict localization to at least nine of the major subcellular locations (nucleus, cytosol, mitochondrion, extracellular region, plasma membrane, Golgi apparatus, endoplasmic reticulum (ER), peroxisome, and lysosome). The selected methods were CELLO, MultiLoc, Proteome Analyst, pTarget and WoLF PSORT. These methods were evaluated using 3763 mouse proteins from SwissProt that represent the source of the training sets used in development of the individual methods. In addition, an independent evaluation set of 2145 mouse proteins from LOCATE with a bias towards the subcellular localization underrepresented in SwissProt was used. The sensitivity and specificity were calculated for each method and compared to a theoretical value based on what might be observed by random chance. CONCLUSION: No individual method had a sufficient level of sensitivity across both evaluation sets that would enable reliable application to hypothetical proteins. All methods showed lower performance on the LOCATE dataset and variable performance on individual subcellular localizations was observed. Proteins localized to the secretory pathway were the most difficult to predict, while nuclear and extracellular proteins were predicted with the highest sensitivity