The Impacts of Elicitation Mechanism and Reward Size on Estimated Rates of Time Preference
Format of Original
Journal of Behavioral and Experimental Economics
We run experiments with real monetary rewards ranging from $10 to $500 to estimate rates of time preference and test for hyperbolic discounting. Individuals become more patient with increasing reward sizes, which is consistent with a magnitude effect. This magnitude effect is robust across specifications including a nonparametric analysis and structural maximum likelihood estimation. Subjects are divided between two different elicitation mechanisms (one a matching task and one a choice task) that should both theoretically provide an incentive for participants to reveal their true time preferences. We find some evidence of differences between the rates from the matching and choice tasks but these differences disappear when appropriately modeling the behavioral noise. We uncover little to no evidence of present-biased time preferences.