Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences
This paper examines the empirical question of whether subjects? static choices among rewards received at different times are influenced by their expected income levels at those times. Moreover, we recover time preferences after compensating for possible income effects. Besides eliciting subjects? pr...
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ftrepec:oai:RePEc:qsh:wpaper:197736 2023-05-15T16:50:07+02:00 Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences Attila Ambrus Tinna Laufey Ásgeirsdóttir Jawwad Noor László Sándor http://scholar.harvard.edu/sandor/node/197736 unknown http://scholar.harvard.edu/sandor/node/197736 preprint ftrepec 2020-12-04T13:37:20Z This paper examines the empirical question of whether subjects? static choices among rewards received at different times are influenced by their expected income levels at those times. Moreover, we recover time preferences after compensating for possible income effects. Besides eliciting subjects? preference between standard delayed rewards, the experimental design also elicited their preferences over delayed rewards that are received only if the subject?s income remains approximately constant. These preferences, along with elicited subjective probabilities of satisfying the condition, make the correction possible. We conducted the experiments in Iceland, where our prompt access to income tax records enabled us to condition delayed rewards on income realizations. We find that background income is associated with preferences over unconditional delayed rewards. While most people exhibited present bias when comparing unconditional delayed rewards, subjects with stable income did not. The results are similar for the entire sample once we correct subjects? discount functions for income effects. This suggests that income expectations have an effect on choices between future rewards, and that this may account for some of the present-bias observed in experiments. Report Iceland RePEc (Research Papers in Economics) |
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RePEc (Research Papers in Economics) |
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This paper examines the empirical question of whether subjects? static choices among rewards received at different times are influenced by their expected income levels at those times. Moreover, we recover time preferences after compensating for possible income effects. Besides eliciting subjects? preference between standard delayed rewards, the experimental design also elicited their preferences over delayed rewards that are received only if the subject?s income remains approximately constant. These preferences, along with elicited subjective probabilities of satisfying the condition, make the correction possible. We conducted the experiments in Iceland, where our prompt access to income tax records enabled us to condition delayed rewards on income realizations. We find that background income is associated with preferences over unconditional delayed rewards. While most people exhibited present bias when comparing unconditional delayed rewards, subjects with stable income did not. The results are similar for the entire sample once we correct subjects? discount functions for income effects. This suggests that income expectations have an effect on choices between future rewards, and that this may account for some of the present-bias observed in experiments. |
format |
Report |
author |
Attila Ambrus Tinna Laufey Ásgeirsdóttir Jawwad Noor László Sándor |
spellingShingle |
Attila Ambrus Tinna Laufey Ásgeirsdóttir Jawwad Noor László Sándor Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences |
author_facet |
Attila Ambrus Tinna Laufey Ásgeirsdóttir Jawwad Noor László Sándor |
author_sort |
Attila Ambrus |
title |
Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences |
title_short |
Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences |
title_full |
Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences |
title_fullStr |
Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences |
title_full_unstemmed |
Compensated Discount Functions: An Experiment on the Influence of Expected Income on Time Preferences |
title_sort |
compensated discount functions: an experiment on the influence of expected income on time preferences |
url |
http://scholar.harvard.edu/sandor/node/197736 |
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Iceland |
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Iceland |
op_relation |
http://scholar.harvard.edu/sandor/node/197736 |
_version_ |
1766040298089086976 |