Estimating Time Preferences from Convex Budgets
James Andreoni, Charles Sprenger
American Economic Review / NBER · 2012
Abstract
Introduces the Convex Time Budget (CTB) method to jointly estimate discounting and utility curvature, addressing a key confound in standard 'smaller-sooner vs. larger-later' elicitations.
Methodology
Experiments in which subjects allocate a budget between an earlier and a later date across many interest rates, allowing simultaneous identification of the discount rate, present bias, and the curvature of utility.
Findings
Once utility curvature is properly accounted for, measured present bias is much smaller than the standard money-earlier/later paradigm suggests—monetary discounting looks close to exponential, implying that some apparent impatience reflects diminishing marginal utility rather than a taste for immediacy.
Applied nudge
Be cautious inferring 'impatience' from choices over money—the curvature of value, not pure present bias, can drive them; measure the mechanism before designing the fix.
Citation
Andreoni, J., & Sprenger, C. (2012). Estimating time preferences from convex budgets. American Economic Review, 102(7), 3333-3356.
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