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Be patient when measuring hyperbolic discounting: Stationarity, time consistency and time invariance in a field experiment

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  • Janssens, Wendy
  • Kramer, Berber
  • Swart, Lisette
Abstract
Hyperbolic discounting is one potential reason why savings remain low among the poor. Most evidence of hyperbolic discounting is based on violations of either stationarity or time consistency. Stationarity is violated when intertemporal choices differ for trade-offs in the near versus the more distant future. Time consistency is violated if the optimal allocation for specific dates changes over time. Both types of choice reversals may however also result from time-varying discount rates. Hyperbolic discounting is an unambiguous explanation for choice reversals only if the same individuals violate both stationarity and time consistency. Our field experiment in Nigeria examines the extent to which this is the case. The experiment measured both stationarity and time consistency for the same participants. Violations of the two rarely coincide, especially among more liquidity-constrained participants. Thus, in a context of liquidity constraints, eliciting only one type of choice reversal is insufficient to identify hyperbolic discounting.

Suggested Citation

  • Janssens, Wendy & Kramer, Berber & Swart, Lisette, 2017. "Be patient when measuring hyperbolic discounting: Stationarity, time consistency and time invariance in a field experiment," Journal of Development Economics, Elsevier, vol. 126(C), pages 77-90.
    • Handle: RePEc:eee:deveco:v:126:y:2017:i:c:p:77-90
    DOI: 10.1016/j.jdeveco.2016.12.011
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    6. Anujit Chakraborty & Evan M. Calford & Guidon Fenig & Yoram Halevy, 2017. "External and internal consistency of choices made in convex time budgets," Experimental Economics, Springer;Economic Science Association, vol. 20(3), pages 687-706, September.
    7. Geng, Xin & Janssens, Wendy & Kramer, Berber, 2023. "Liquid milk: Savings, insurance and side-selling in cooperatives," Journal of Development Economics, Elsevier, vol. 165(C).
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    9. Kramer, Berber & Kunst, David, 2017. "Intertemporal choice and income regularity: Non-fungibility in a lab-in-the-field experiment," IFPRI discussion papers 1646, International Food Policy Research Institute (IFPRI).
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    13. Antonia Grohmann & Tabea Lakemann & Helke Seitz, 2020. "Savings Goal Calendars as Soft Commitment Devices: Evidence from Small Business Owners in Uganda," Discussion Papers of DIW Berlin 1919, DIW Berlin, German Institute for Economic Research.
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    17. Rachel Cassidy, 2018. "Are the poor so present-biased?," CSAE Working Paper Series 2018-19, Centre for the Study of African Economies, University of Oxford.
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    More about this item

    Keywords

    Time preferences; Hyperbolic discounting; Temporal stability; Liquidity constraints;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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