NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Time-Inconsistency and Saving: Experimental Evidence from Low-Income Tax Filers

Damon Jones, Aprajit Mahajan

NBER Working Paper No. 21272
Issued in June 2015
NBER Program(s):   PE

We conduct a field experiment designed to test theories of time-inconsistency, namely a "Beta-Delta" model of present bias. The experiment takes place in the context of a saving decision made by low-income tax filers who can deposit their income tax refund into an illiquid account. We find qualitative evidence consistent with present-biased preferences. The tradeoff between an earlier payment or a later one is much more skewed toward taking the early payment when the decision is made on the spot than when the decision is made in advance. We estimate a β and δ of 0.34 and 1.08 over an 8-month horizon, respectively, which translates into an annual discount rate of 164%.

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Document Object Identifier (DOI): 10.3386/w21272

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