Estimating Time Preferences from Convex Budgets

Abstract

Experimentally elicited discount rates are frequently higher than what one would infer from market interest rates and seem unreasonable for economic decision-making. Such high rates have often been attributed to dynamic inconsistency, as in present bias and hyperbolic discounting. A commonly recognized bias of standard elicitation techniques is the use of linear preferences for identification. We present a novel methodology for identifying time preferences, both discounting and utility function curvature, from simple allocation decisions. We estimate annual discount rates substantially lower than normally obtained, and limited though significant utility function curvature. Additionally, our data show no evidence of dynamic inconsistency.JEL classification: D81, D90

Observed and Normative Discount Functions in Addiction and other Diseases

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Time preferences and health behaviour: a review

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