NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Estimating Time Preferences from Convex Budgets

James Andreoni, Charles Sprenger

NBER Working Paper No. 16347
Issued in September 2010
NBER Program(s):   PE

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 present bias and hyperbolic discounting. A commonly recognized bias of standard elicitation techniques is the use of linear preferences for identification. When attempts are made to correct this bias with additional experimental measures, researchers find exceptional degrees of utility function curvature. We present a new 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, dynamically consistent discounting, and limited though significant utility function curvature.

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Document Object Identifier (DOI): 10.3386/w16347

Published: James Andreoni & Charles Sprenger, 2012. "Estimating Time Preferences from Convex Budgets," American Economic Review, American Economic Association, vol. 102(7), pages 3333-56, December.

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