How Soon Is Now? Evidence of Present Bias from Convex Time Budget Experiments
Empirically observed intertemporal choices about money have long been thought to exhibit present bias, i.e. higher short-term compared to long-term discount rates. Recently, this view has been called into question on both empirical and theoretical grounds, and a spate of recent findings suggest that present bias for money is minimal or non-existent when one allows for curvature in the utility function and transaction costs are tightly controlled. However, an alternative interpretation of many of these findings is that, in the interest of equalizing transaction costs across earlier and later payments, small delays were introduced between the time of the experiment and the soonest payment. We conduct a laboratory experiment in Kenya in which we elicit time and risk preference parameters from 494 participants, using convex time budgets and tightly controlling for transaction costs. We vary whether same-day payments are made immediately after the experimental session or at the close of the business day. Using the Kenyan mobile money system M-Pesa to make real-time transfers to subjects' phones allows us to make the soonest payments truly immediate. We find strong evidence of present bias, with estimates of the present bias parameter ranging from 0.902 to 0.924 — but only when same-day payments are made immediately after the experiment. This result suggests that present bias for money does in fact exist, but only for truly immediate payments.
We are grateful to Chaning Jang, James Vancel, and the staff of the Busara Center for Behavioral Economics for excellent research assistance, and to Ned Augenblick, Stefano DellaVigna, Pascaline Dupas, Ray Fisman, Jess Goldberg, Anett John, Shachar Kariv, Supreet Kaur, Maggie McConnell, Owen Ozier, Charles Sprenger, Dmitry Taubinsky, two anonymous referees, and numerous conference and seminar participants for helpful comments. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Uttara Balakrishnan & Johannes Haushofer & Pamela Jakiela, 2020. "How soon is now? Evidence of present bias from convex time budget experiments," Experimental Economics, vol 23(2), pages 294-321. citation courtesy of