Intertemporal Choice

Abstract

Intertemporal tradeoffs play a key role in many personal decisions and policy questions. We describe models of intertemporal choice, identify empirical regularities in choice, and pose new questions for research. The focus for intertemporal choice research is no longer whether the exponential discounted utility model is empirically accurate, but, instead, what models best explain the robust behavioral deviations we observe. We introduce the term "present-focused preferences" to describe the large class of models that prioritize present flows of experienced utility. Present-focused preferences need not coincide with a preference for commitment or dynamically inconsistent preferences. Present-bias is a special case of present-focused preferences.

Teacher Preferences, Working Conditions, and Compensation Structure

“…Teachers value a 1 percent increase in their retirement replacement the equivalent of a $173 starting-salary increase, which would increase their yearly retirement benefit by $840 under the current salary schedule after 30 years, when teachers become eligible for retirement. Reassuringly, the implied discount factor is 0.949 (solving for delta, 840 × δ 30 = 173), a value that aligns closely with the empirical literature estimating discount factors (Best et al 2018;Ericson and Laibson 2018). 23 This reinforces the claim that teachers respond realistically.…”

Sludge Audits

“…That is one reason that participation rates are often much lower with opt-in designs than with opt-out designs (for an especially dramatic illustration, see Bergman et al, 2018). Recall too that inertia is aggravated by present bias, leading people to focus on the short term and neglect the future (Ericson & Laibson, 2018). Suppose in this light that consumers must fill out certain forms in order to be eligible for important benefits or to avoid significant penalties.…”

Life Stress and Inhibitory Control Deficits: Teaching BrainWise as a Neurocognitive Intervention in Vulnerable Populations

“…These techniques include strategies that help control emotions such as control self-talk, stop talking, leave the situation, redirect your emotions, and control relaxation. Instructors are encouraged to add any number of interventions that will help their clients and students regulate inhibition and improve self-control [85,106,107]. BrainWise helps participants recognize that many strategies are available and use the Wizard Brain to find what works best for them.…”

“…This activity helps change myopic perceptions that cause problems. Ericson and Laibson [107] discuss how myopic behavior creates "cognitive noise" that causes perceptual limitations. Wise Way 7 helps participants expand their thinking about choices and prepares them for the next skill-considering the consequences of making a choice.…”

“…Thinking about the outcomes of choices is complicated [2,76,107]. This lesson teaches consequential thinking in the context of the seven preceding skills.…”