NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Money Earlier or Later? Simple Heuristics Explain Intertemporal Choices Better than Delay Discounting

Keith M. Ericson, John Myles White, David Laibson, Jonathan D. Cohen

NBER Working Paper No. 20948
Issued in February 2015
NBER Program(s):   AG

Heuristic models have been proposed for many domains of choice. We compare heuristic models of intertemporal choice, which can account for many of the known intertemporal choice anomalies, to discounting models. We conduct an out-of-sample, cross-validated comparison of intertemporal choice models. Heuristic models outperform traditional utility discounting models, including models of exponential and hyperbolic discounting. The best performing models predict choices by using a weighted average of absolute differences and relative (percentage) differences of the attributes of the goods in a choice set. We conclude that heuristic models explain time-money tradeoff choices in experiments better than utility discounting models.

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Document Object Identifier (DOI): 10.3386/w20948

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