DOCSLIB.ORG

Behavioural Economics Mark.Hurlstone @Uwa.Edu.Au Behavioural Economics Outline

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
Behavioural Economics Mark.Hurlstone @Uwa.Edu.Au Behavioural Economics Outline Behavioural Economics mark.hurlstone @uwa.edu.au Behavioural Economics Outline Intertemporal Choice Exponential PSYC3310: Specialist Topics In Psychology Discounting Discount Factor Utility Streams Mark Hurlstone Delta Model Univeristy of Western Australia Implications Indifference Discount Rates Limitations Seminar 7: Intertemporal Choice Hyperbolic Discounting Beta-delta model CSIRO-UWA Behavioural Present-Bias Strengths & Economics Limitations BEL Laboratory [email protected] Behavioural Economics Today Behavioural Economics • mark.hurlstone Examine preferences (4), time (2), and utility @uwa.edu.au maximisation (1) in standard model) Outline (1) (2) (3) (4) Intertemporal Choice Exponential Discounting Discount Factor Utility Streams Delta Model Implications Indifference Discount Rates • Intertemporal choice—the exponential discounting Limitations model Hyperbolic Discounting • anomalies in the standard Model Beta-delta model Present-Bias • behavioural economic alternative—quasi-hyperbolic Strengths & Limitations discounting [email protected] Behavioural Economics Today Behavioural Economics • mark.hurlstone Examine preferences (4), time (2), and utility @uwa.edu.au maximisation (1) in standard model) Outline (1) (2) (3) (4) Intertemporal Choice Exponential Discounting Discount Factor Utility Streams Delta Model Implications Indifference Discount Rates • Intertemporal choice—the exponential discounting Limitations model Hyperbolic Discounting • anomalies in the standard Model Beta-delta model Present-Bias • behavioural economic alternative—quasi-hyperbolic Strengths & Limitations discounting [email protected] Behavioural Economics Intertemporal choice Behavioural Economics mark.hurlstone • Time is important in most decisions because the choices we @uwa.edu.au make will have future consequences Outline • Intertemporal choices relate to decisions involving Intertemporal Choice trade-offs between costs and benefits occurring in different Exponential time periods e.g., Discounting Discount Factor • when purchasing a 1-year warranty for a new tablet Utility Streams Delta Model computer, you are choosing between a certain loss now Implications Indifference and the possibility of suffering a loss later Discount Rates Limitations • Some decisions have immediate benefits and deferred costs Hyperbolic (e.g., movie with friends vs. clean house) Discounting Beta-delta model • Others have immediate costs and deferred benefits (e.g., Present-Bias Strengths & comfortable retirement vs. new car) Limitations [email protected] Behavioural Economics Time discounting Behavioural Economics mark.hurlstone @uwa.edu.au • People tend to be impatient—they prefer immediate rewards to delayed rewards Outline Intertemporal • $100 today is preferred to $100 tomorrow; $1000 today Choice is preferred to $1000 next year Exponential Discounting • Discount Factor When things in the future do not give you as much Utility Streams utility—from the point of view of today—as things that Delta Model Implications happen today, we say you discount the future Indifference Discount Rates • the general term is time discounting Limitations Hyperbolic • The extent to which you discount the future is a matter Discounting Beta-delta model of preference—known as time preference Present-Bias Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: Discount factor Behavioural Economics • The standard model explains the fact that people prefer their mark.hurlstone @uwa.edu.au money sooner rather than later in terms of exponential discounting Outline Intertemporal • Suppose that u > 0 is the utility you derive from receiving a Choice dollar today Exponential Discounting • Discount Factor From your current point of view (viz. today) the utility of Utility Streams receiving a dollar tomorrow is less than u Delta Model Implications Indifference • We capture this by multiplying the utility of receiving a dollar Discount Rates today by a parameter δ (0 < δ ≤ 1) known as the discount Limitations factor Hyperbolic Discounting • Thus, from your current point of view, a dollar tomorrow is Beta-delta model Present-Bias worth δ × u = δu; a dollar the day after tomorrow will be Strengths & 2 Limitations worth δ × δ × u = δ u [email protected] Behavioural Economics Exponential discounting: Utility streams Behavioural Economics mark.hurlstone @uwa.edu.au • In general, we want to be able to evaluate a whole sequence of utilities, that is a utility stream Outline Intertemporal • Letting t represent time, we will use t = 0 to represent Choice Exponential today, t = 1 to represent tomorrow, t = 2 to represent the Discounting day after tomorrow, and so on Discount Factor Utility Streams Delta Model • We will let ut denote the utility you receive at time t Implications Indifference meaning that: Discount Rates • u represents the utility you receive today Limitations 0 • u1 represents the utility you receive tomorrow Hyperbolic Discounting • u2 represents the utility you receive the day after Beta-delta model Present-Bias tomorrow, and so on Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: Utility streams Behavioural Economics mark.hurlstone @uwa.edu.au Utility streams for different choice options (viz. a, b, c, d) Outline can be represented in table form: Intertemporal Choice t = 0 t = 1 t = 2 Exponential Discounting a 1 0 0 Discount Factor Utility Streams b 0 3 0 Delta Model Implications c 0 0 4 Indifference Discount Rates d 1 3 4 Limitations Hyperbolic We can determine which option you should choose using Discounting Beta-delta model the delta model Present-Bias Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: The delta model Behavioural Economics mark.hurlstone @uwa.edu.au According to the delta function, the utility U0(u) of utility Outline stream u = hu0; u1; u2; :::i from the point of view of time t = 0 Intertemporal Choice is: Exponential Discounting 1 Discount Factor 0 2 3 X t Utility Streams U (u) = u0 + δu1 + δ u2 + δ u3 + ::: = σ ut (1) Delta Model t=1 Implications Indifference Discount Rates Where δ (0 < δ ≤ 1) is the discount factor which captures Limitations time preference (patience = values close to 1, whereas Hyperbolic impatience = values close to 0) Discounting Beta-delta model Present-Bias Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: The delta model Behavioural Economics • Let’s apply the delta model to the utility streams in the mark.hurlstone @uwa.edu.au table on the earlier slide Outline • Assume that δ = 0.9 and each utility stream is Intertemporal evaluated from t = 0 Choice • The expected utilities are: Exponential Discounting • 0 Discount Factor U (a) = u0 = 1 Utility Streams • U0(b) = δu = 0.9 × 3 = 2.7 Delta Model 1 0 2 2 Implications • U (c) = δ u2 = 0.9 × 4 = 3.24 Indifference 0 2 Discount Rates • U (d) = u0 + δu1 + δ u2 = 1 + 2.7 + 3.24 = 6.94 Limitations • Hyperbolic If given the choice between all four alternatives, you Discounting should choose option d Beta-delta model Present-Bias Strengths & • If given the choice between a, b, and c, you should Limitations choose c [email protected] Behavioural Economics Exponential discounting: The delta model Behavioural Economics mark.hurlstone @uwa.edu.au • What happens if we repeat this process, but this time assume that δ = 0.1? Outline • Intertemporal The expected utilities are: Choice 0 • U (a) = u0 = 1 Exponential 0 Discounting • U (b) = δu1 = 0.1 × 3 = 0.3 Discount Factor • U0 δ2u 2 × Utility Streams (c) = 2 = 0.1 4 = 0.04 0 2 Delta Model • U (d) = u0 + δu1 + δ u2 = 1 + 0.3 + 0.04 = 1.34 Implications Indifference Discount Rates • If given the choice between all four alternatives, you Limitations should still choose option d Hyperbolic Discounting • But now, if given the choice between a, b, and c, you Beta-delta model Present-Bias should choose a Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: Implications of discount factor Behavioural Economics mark.hurlstone @uwa.edu.au Outline • As this example shows, your discount factor can have a Intertemporal dramatic impact on your choices Choice Exponential • If your discount factor is high—viz. close to one—you Discounting Discount Factor exhibit patience and do not discount the future much Utility Streams Delta Model • Implications If your discount factor is low—viz. close to zero—you Indifference Discount Rates exhibit impatience and discount the future heavily Limitations • You can see how δ captures time preferences Hyperbolic Discounting Beta-delta model Present-Bias Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: Implications of discount factor Behavioural Economics mark.hurlstone @uwa.edu.au • Economists believe that discount factors can be used to Outline Intertemporal explain a great deal of human behaviour Choice • Exponential If your discount factor is low, you are are more likely to Discounting spend money, procrastinate, do drugs, and have unsafe Discount Factor Utility Streams sex Delta Model Implications Indifference • If your discount factor is high, you are more likely to Discount Rates Limitations save money, plan for the future, say no to drugs and Hyperbolic use protection Discounting Beta-delta model Present-Bias Strengths & Limitations [email protected] Behavioural Economics Exponential discounting: Indifference
Load more

Recommended publications
  • Chapter 17: Consumption 1
    11/6/2013 Keynes’s conjectures Chapter 17: Consumption 1. 0 < MPC < 1 2. Average propensity to consume (APC) falls as income rises. (APC = C/Y ) 3. Income is the main determinant of consumption. CHAPTER 17 Consumption 0 CHAPTER 17 Consumption 1 The Keynesian consumption function The Keynesian consumption function As income rises, consumers save a bigger C C fraction of their income, so APC falls. CCcY CCcY c c = MPC = slope of the 1 CC consumption APC c C function YY slope = APC Y Y CHAPTER 17 Consumption 2 CHAPTER 17 Consumption 3 Early empirical successes: Problems for the Results from early studies Keynesian consumption function . Households with higher incomes: . Based on the Keynesian consumption function, . consume more, MPC > 0 economists predicted that C would grow more . save more, MPC < 1 slowly than Y over time. save a larger fraction of their income, . This prediction did not come true: APC as Y . As incomes grew, APC did not fall, . Very strong correlation between income and and C grew at the same rate as income. consumption: . Simon Kuznets showed that C/Y was income seemed to be the main very stable in long time series data. determinant of consumption CHAPTER 17 Consumption 4 CHAPTER 17 Consumption 5 1 11/6/2013 The Consumption Puzzle Irving Fisher and Intertemporal Choice . The basis for much subsequent work on Consumption function consumption. C from long time series data (constant APC ) . Assumes consumer is forward-looking and chooses consumption for the present and future to maximize lifetime satisfaction. Consumption function . Consumer’s choices are subject to an from cross-sectional intertemporal budget constraint, household data a measure of the total resources available for (falling APC ) present and future consumption.
    [Show full text]
  • Toward a Theory of Intertemporal Policy Choice Alan M. Jacobs
    Democracy, Public Policy, and Timing: Toward a Theory of Intertemporal Policy Choice Alan M. Jacobs Department of Political Science University of British Columbia C472 – 1866 Main Mall Vancouver, B.C. V6T 1Z1 [email protected] DRAFT: DO NOT CITE Presented at the Annual Conference of the Canadian Political Science Association, June 3-5, 2004, at the University of Manitoba, Winnipeg. In the title to a 1950 book, Harold Lasswell provided what has become a classic definition of politics: “Who Gets What, When, How.”1 Lasswell’s definition is an invitation to study political life as a fundamental process of distribution, a struggle over the production and allocation of valued goods. It is striking how much of political analysis – particularly the study of what governments do – has assumed this distributive emphasis. It would be only a slight simplification to describe the fields of public policy, welfare state politics, and political economy as comprised largely of investigations of who gets or loses what, and how. Why and through what causal mechanisms, scholars have inquired, do governments take actions that benefit some groups and disadvantage others? Policy choice itself has been conceived of primarily as a decision about how to pay for, produce, and allocate socially valued outcomes. Yet, this massive and varied research agenda has almost completely ignored one part of Lasswell’s short definition. The matter of when – when the benefits and costs of policies arrive – seems somehow to have slipped the discipline’s collective mind. While we have developed subtle theoretical tools for explaining how governments impose costs and allocate goods at any given moment, we have devoted extraordinarily little attention to illuminating how they distribute benefits and burdens over time.
    [Show full text]
  • Behavioural Economics University of Oxford Vincent P
    Behavioural Economics University of Oxford Vincent P. Crawford Michaelmas Term 2012 Behavioural Decision Theory: Present-Bias and Time-Inconsistency in Intertemporal Choice (with very large debts to David Laibson and Ted O’Donoghue; material from their slides is used with permission) Revised 18 October 2013 1 The standard model of intertemporal choice in economics is time-separable utility with exponential discounting (Ramsey 1928 EJ, Samuelson, 1937 REStud): ⋯ With exponential discounting, your trade-offs between receiving utils today and receiving them with delay are independent of when that delay occurs: • If you prefer 10 utils now to 15 next week, then you must also prefer 10 utils in 25 weeks to 15 in 26 weeks. This agreement implies “time-consistent” (or “dynamically consistent”) choice, in that early and later selves agree on the ranking of plans, so that the mere passage of time (with no new information) doesn’t change the ranking. (In more general models, receiving new information over time could affect your preferences over plans conditional on the information received. But if your preferences are time-consistent, receiving new information over time cannot alter your preferences over plans contingent on resolution of uncertainty.) Thus, an exponential planner can simply maximize lifetime utility at the start of his life without worrying about later selves overturning his decisions. 2 For an exponential discounter, if it’s beneficial to do something next week/month/year/etc., other things equal it’s (even more) beneficial to do it Now. But people often seem to deviate systematically from these implications of the exponential discounting model.
    [Show full text]
  • ECON 302: Intermediate Macroeconomic Theory (Fall 2014)
    ECON 302: Intermediate Macroeconomic Theory (Fall 2014) Discussion Section 2 September 19, 2014 SOME KEY CONCEPTS and REVIEW CHAPTER 3: Credit Market Intertemporal Decisions • Budget constraint for period (time) t P ct + bt = P yt + bt−1 (1 + R) Interpretation of P : note that the unit of the equation is dollar valued. The real value of one dollar is the amount of goods this one dollar can buy is 1=P that is, the real value of bond is bt=P , the real value of consumption is P ct=P = ct. Normalization: we sometimes normalize price P = 1, when there is no ination. • A side note for income yt: one may associate yt with `t since yt = f (`t) here that is, output is produced by labor. • Two-period model: assume household lives for two periods that is, there are t = 1; 2. Household is endowed with bond or debt b0 at the beginning of time t = 1. The lifetime income is given by (y1; y2). The decision variables are (c1; c2; b1; b2). Hence, we have two budget-constraint equations: P c1 + b1 = P y1 + b0 (1 + R) P c2 + b2 = P y2 + b1 (1 + R) Combining the two equations gives the intertemporal (lifetime) budget constraint: c y b (1 + R) b c + 2 = y + 2 + 0 − 2 1 1 + R 1 1 + R P P (1 + R) | {z } | {z } | {z } | {z } (a) (b) (c) (d) (a) is called real present value of lifetime consumption, (b) is real present value of lifetime income, (c) is real present value of endowment, and (d) is real present value of bequest.
    [Show full text]
  • Uncertainty and Hyperbolic Discounting
    Uncertainty and Hyperbolic Discounting By PARTHA DASGUPTA AND ERIC MASKIN* Empirical studies in economics and behav- they have become more impatient than they ioral ecology suggest that, ceteris paribus, ani- were in January. mals and humans appear to place less weight on Both the O’Donoghue-Rabin and Strotz ex- the future than on the present, i.e., they act as amples accord with “hyperbolic discounting,”2 though they discount future payoffs. Further- which has attracted considerable interest among more (and more interestingly), they do so with economists because it appears to shed light on discount rates that increase as the time before important economic phenomena such as house- those payoffs are realized grows shorter.1 In hold saving behavior (see David Laibson, 1997; other words, subjects act as though they become B. Douglas Bernheim et al., 2001; Christopher less patient when payoffs are more imminent. Harris and Laibson, 2003). An anecdotal (human) example is offered by One might ask whether there is some reason Ted O’Donoghue and Matthew Rabin (1999): for such behavior. The point of view that we when offered the choice in February between a take is that, to a considerable extent, animal and painful seven-hour task (e.g., preparing a tax human behavior is shaped by preferences that return) on April 1 and a painful eight-hour task are the outcome of evolutionary forces. That is, on April 15, most of us, they suggest, will opt cravings, urges, or instincts—the operational for the earlier date. But as April 1 approaches, manifestations of preferences—induce the ani- we are apt to change our minds, if we can, and mal or human to make the right choice in the postpone the pain to April 15, even though it “average” situation that it, he, or she is likely to will then be greater.
    [Show full text]
  • A Monthly Struggle for Self-Control? Hyperbolic Discounting, Mental Accounting, and the Fall in Consumption Between Paydays
    A Monthly Struggle for Self-Control? Hyperbolic Discounting, Mental Accounting, and the Fall in Consumption Between Paydays David Huffman IZA Bonn Matias Barenstein US Federal Trade Commission First draft: November, 2002 This version: December, 2005 Abstract An alternative conception of consumer choice has recently gained the attention of economists, which allows for two closely related departures from the standard model. First, consumers may have dynamically inconsistent preferences. Second, as a rational response to this dynamic inconsistency, the consumer may use external commitment devices or personal rules in an attempt to limit overspending. We use data from a large, representative sample of households in the UK to test the relevance of these twin predictions in the field. We find evidence that consumption spending declines between paydays, and jumps back to its initial level on the next payday. The decline is too steep to be explained by dynamically consistent (exponential) impatience, and does not appear to be driven by stockpiling or other rational motives. On the other hand a model with dynamically inconsistent (quasi-hyperbolic) time preference can explain the decline, for reasonable short-term and long-term discount rates. We also investigate whether households in our sample appear to make an effort at self-control, using a strategy emphasized in the literature: a mental accounting rule that limits borrowing during the pay period and thus puts a cap on overspending. We find that households who are able to borrow, in the sense that they own a credit card, nevertheless exhibit the spending profile characteristic of credit constraints. Investigating their behavior in more detail, we find that these households treat funds from the current and future income accounts very differently during the pay period.
    [Show full text]
  • Risk Preferences Impose a Hidden Distortion on Measures of Choice Impulsivity
    RESEARCH ARTICLE Risk preferences impose a hidden distortion on measures of choice impulsivity Silvia Lopez-Guzman1*, Anna B. Konova1, Kenway Louie1, Paul W. Glimcher1,2 1 Center for Neural Science, New York University, New York, United States of America, 2 Institute for the Study of Decision Making, New York University, New York, United States of America * [email protected] a1111111111 a1111111111 Abstract a1111111111 a1111111111 Measuring temporal discounting through the use of intertemporal choice tasks is now the a1111111111 gold standard method for quantifying human choice impulsivity (impatience) in neurosci- ence, psychology, behavioral economics, public health and computational psychiatry. A recent area of growing interest is individual differences in discounting levels, as these may predispose to (or protect from) mental health disorders, addictive behaviors, and other dis- OPEN ACCESS eases. At the same time, more and more studies have been dedicated to the quantification of individual attitudes towards risk, which have been measured in many clinical and non-clin- Citation: Lopez-Guzman S, Konova AB, Louie K, Glimcher PW (2018) Risk preferences impose a ical populations using closely related techniques. Economists have pointed to interactions hidden distortion on measures of choice between measurements of time preferences and risk preferences that may distort estima- impulsivity. PLoS ONE 13(1): e0191357. https:// tions of the discount rate. However, although becoming standard practice in economics, dis- doi.org/10.1371/journal.pone.0191357 count rates and risk preferences are rarely measured simultaneously in the same subjects Editor: Pablo Brañas-Garza, Middlesex University, in other fields, and the magnitude of the imposed distortion is unknown in the assessment of UNITED KINGDOM individual differences.
    [Show full text]
  • The Intertemporal Keynesian Cross
    The Intertemporal Keynesian Cross Adrien Auclert Matthew Rognlie Ludwig Straub February 14, 2018 PRELIMINARY AND INCOMPLETE,PLEASE DO NOT CIRCULATE Abstract This paper develops a novel approach to analyzing the transmission of shocks and policies in many existing macroeconomic models with nominal rigidities. Our approach is centered around a network representation of agents’ spending patterns: nodes are goods markets at different times, and flows between nodes are agents’ marginal propensities to spend income earned in one node on another one. Since, in general equilibrium, one agent’s spending is an- other agent’s income, equilibrium demand in each node is described by a recursive equation with a special structure, which we call the intertemporal Keynesian cross (IKC). Each solution to the IKC corresponds to an equilibrium of the model, and the direction of indeterminacy is given by the network’s eigenvector centrality measure. We use results from Markov chain potential theory to tightly characterize all solutions. In particular, we derive (a) a generalized Taylor principle to ensure bounded equilibrium determinacy; (b) how most shocks do not af- fect the net present value of aggregate spending in partial equilibrium and nevertheless do so in general equilibrium; (c) when heterogeneity matters for the aggregate effect of monetary and fiscal policy. We demonstrate the power of our approach in the context of a quantitative Bewley-Huggett-Aiyagari economy for fiscal and monetary policy. 1 Introduction One of the most important questions in macroeconomics is that of how shocks are propagated and amplified in general equilibrium. Recently, shocks that have received particular attention are those that affect households in heterogeneous ways—such as tax rebates, changes in monetary policy, falls in house prices, credit crunches, or increases in economic uncertainty or income in- equality.
    [Show full text]
  • Intertemporal Choice and Competitive Equilibrium
    Intertemporal Choice and Competitive Equilibrium Kirsten I.M. Rohde °c Kirsten I.M. Rohde, 2006 Published by Universitaire Pers Maastricht ISBN-10 90 5278 550 3 ISBN-13 978 90 5278 550 9 Printed in The Netherlands by Datawyse Maastricht Intertemporal Choice and Competitive Equilibrium PROEFSCHRIFT ter verkrijging van de graad van doctor aan de Universiteit Maastricht, op gezag van de Rector Magni¯cus, prof. mr. G.P.M.F. Mols volgens het besluit van het College van Decanen, in het openbaar te verdedigen op vrijdag 13 oktober 2006 om 14.00 uur door Kirsten Ingeborg Maria Rohde UMP UNIVERSITAIRE PERS MAASTRICHT Promotores: Prof. dr. P.J.J. Herings Prof. dr. P.P. Wakker Beoordelingscommissie: Prof. dr. H.J.M. Peters (voorzitter) Prof. dr. T. Hens (University of ZÄurich, Switzerland) Prof. dr. A.M. Riedl Contents Acknowledgments v 1 Introduction 1 1.1 Intertemporal Choice . 2 1.2 Intertemporal Behavior . 4 1.3 General Equilibrium . 5 I Intertemporal Choice 9 2 Koopmans' Constant Discounting: A Simpli¯cation and an Ex- tension to Incorporate Economic Growth 11 2.1 Introduction . 11 2.2 The Result . 13 2.3 Related Literature . 18 2.4 Conclusion . 21 2.5 Appendix A. Proofs . 21 2.6 Appendix B. Example . 25 3 The Hyperbolic Factor: a Measure of Decreasing Impatience 27 3.1 Introduction . 27 3.2 The Hyperbolic Factor De¯ned . 30 3.3 The Hyperbolic Factor and Discounted Utility . 32 3.3.1 Constant Discounting . 33 3.3.2 Generalized Hyperbolic Discounting . 33 3.3.3 Harvey Discounting . 34 i Contents 3.3.4 Proportional Discounting .
    [Show full text]
  • Intertemporal Consumption-Saving Problem in Discrete and Continuous Time
    Chapter 9 The intertemporal consumption-saving problem in discrete and continuous time In the next two chapters we shall discuss and apply the continuous-time version of the basic representative agent model, the Ramsey model. As a prepa- ration for this, the present chapter gives an account of the transition from discrete time to continuous time analysis and of the application of optimal control theory to set up and solve the household’s consumption/saving problem in continuous time. There are many fields in economics where a setup in continuous time is prefer- able to one in discrete time. One reason is that continuous time formulations expose the important distinction in dynamic theory between stock and flows in a much clearer way. A second reason is that continuous time opens up for appli- cation of the mathematical apparatus of differential equations; this apparatus is more powerful than the corresponding apparatus of difference equations. Simi- larly, optimal control theory is more developed and potent in its continuous time version than in its discrete time version, considered in Chapter 8. In addition, many formulas in continuous time are simpler than the corresponding ones in discrete time (cf. the growth formulas in Appendix A). As a vehicle for comparing continuous time modeling with discrete time mod- eling we consider a standard household consumption/saving problem. How does the household assess the choice between consumption today and consumption in the future? In contrast to the preceding chapters we allow for an arbitrary num- ber of periods within the time horizon of the household. The period length may thus be much shorter than in the previous models.
    [Show full text]
  • Present-Bias, Quasi-Hyperbolic Discounting, and Fixed Costs
    ARTICLE IN PRESS YGAME:1750 JID:YGAME AID:1750 /FLA [m3G; v 1.30; Prn:28/12/2009; 11:48] P.1 (1-19) Games and Economic Behavior ••• (••••) •••–••• Contents lists available at ScienceDirect Games and Economic Behavior www.elsevier.com/locate/geb Present-bias, quasi-hyperbolic discounting, and fixed costs ✩ ∗ Jess Benhabib a,AlbertoBisin a ,b,AndrewSchottera ,b, a NYU, United States b CESS, United States article info abstract Article history: In this paper we elicit preferences for money–time pairs via experimental techniques. Received 28 January 2008 We estimate a general specification of discounting that nests exponential and hyperbolic Available online xxxx discounting, as well as various forms of present bias, including quasi-hyperbolic discounting. We find that discount rates are high and decline with both delay and amount, as most JEL classification: of the previous literature. We also find clear evidence for present bias. When identifying C91 D03 the form of the present bias, little evidence for quasi-hyperbolic discounting is found. The D90 data strongly favor instead a specification with a small present bias in the form of a fixed cost, of the order of $4 on average across subjects. With such a fixed cost the curvature of discounting is imprecisely estimated and both exponential and hyperbolic discounting cannot be rejected for several subjects. © 2009 Elsevier Inc. All rights reserved. 1. Introduction A vast literature in experimental psychology has studied time preferences by eliciting preferences over various alternative rewards obtained at different times, that is, over reward–time pairs.1 Representations of such time preferences include a specification of discounting.
    [Show full text]
  • Intertemporal Choices with Temporal Preferences
    INTERTEMPORAL CHOICES WITH TEMPORAL PREFERENCES by Hyeon Sook Park B.A./M.A. in Economics, Seoul National University, 1992 M.A. in Economics, The University of Chicago, 1997 M.S. in Mathematics & C.S., Chicago State University, 2001 M.S. in Financial Mathematics, The University of Chicago, 2004 Submitted to the Graduate Faculty of the Kenneth P. Dietrich Arts and Sciences in partial ful…llment of the requirements for the degree of Doctor of Philosophy University of Pittsburgh 2012 UNIVERSITY OF PITTSBURGH DIETRICH SCHOOL OF ARTS AND SCIENCES This dissertation was presented by Hyeon Sook Park It was defended on May 24, 2012 and approved by John Du¤y, Professor of Economics, University of Pittsburgh James Feigenbaum, Associate Professor of Economics,Utah State University Marla Ripoll, Associate Professor of Economics, University of Pittsburgh David DeJong, Professor of Economics, University of Pittsburgh Dissertation Director: John Du¤y, Professor of Economics, University of Pittsburgh ii INTERTEMPORAL CHOICES WITH TEMPORAL PREFERENCES Hyeon Sook Park, PhD University of Pittsburgh, 2012 This dissertation explores the general equilibrium implications of inter-temporal decision- making from a behavioral perspective. The decision makers in my essays have psychology- driven, non-traditional preferences and they either have short term planning horizons, due to bounded rationality (Essay 1), or have present biased preferences (Essay 2) or their utilities depend not only on the periodic consumption but are also dependent upon their expectations about present and future optimal consumption (Essay 3). Finally, they get utilities from the act of caring for others through giving and volunteering (Essay 4). The decision makers who are de…ned by these preferences are re-optimizing over time if they realize that their past decisions for today are no longer optimal and this is the key mechanism that helps replicate the mean lifecycle consumption data which is known to be hump-shaped over the lifecycle.
    [Show full text]