American Economic Review: Vol. 102 No. 7 (December 2012)


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Estimating Time Preferences from Convex Budgets

Article Citation

Andreoni, James, and Charles Sprenger. 2012. "Estimating Time Preferences from Convex Budgets." American Economic Review, 102(7): 3333-56.

DOI: 10.1257/aer.102.7.3333


Experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision-making. Such high rates are often attributed to present-biased discounting. A well-known bias of standard measurements is the assumption of linear consumption utility. Attempting to correct this bias using measures of risk aversion to identify concavity, researchers find reasonable discounting but at the cost of exceptionally high utility function curvature. We present a new methodology for identifying time preferences, both discounting and curvature, from simple allocation decisions. We find reasonable levels of both discounting and curvature and, surprisingly, dynamically consistent time preferences. (JEL C91, D12, D81)

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Andreoni, James (U CA, San Diego)
Sprenger, Charles (Stanford U)

JEL Classifications

C91: Design of Experiments: Laboratory, Individual
D12: Consumer Economics: Empirical Analysis
D81: Criteria for Decision-Making under Risk and Uncertainty

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