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Are the poor so present-biased?

Author

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  • Rachel Cassidy

    (Institute for Fiscal Studies and World Bank)

Abstract
Estimates of "present-bias" among the poor may be exaggerated if poor individuals are credit-constrained and expect to have greater liquidity in the future. I conduct an experiment in rural Pakistan which provides causal evidence of this effect. I use windfalls to generate fully exogenous variation in subjects' liquidity constraints. I show that fluctuating liquidity has a signifi cant and sizeable effect on measures of time-inconsistency, which does not operate via cognitive functioning. Importantly, I establish that the causation runs from tighter liquidity constraints to appearing "present-biased" rather than truly present-biased individuals making choices which lead to tighter liquidity constraints.

Suggested Citation

  • Rachel Cassidy, 2018. "Are the poor so present-biased?," IFS Working Papers W18/24, Institute for Fiscal Studies.
    • Handle: RePEc:ifs:ifsewp:18/24
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    File URL: https://www.ifs.org.uk/uploads/publications/wps/WP201824.pdf
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    References listed on IDEAS

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    Cited by:

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    3. Massimo Filippini & Nilkanth Kumar & Suchita Srinivasan, 2021. "Behavioral Anomalies and Fuel Efficiency: Evidence from Motorcycles in Nepal," CER-ETH Economics working paper series 21/353, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    4. Cassidy, Rachel & Fafchamps, Marcel, 2020. "Banker my neighbour: Matching and financial intermediation in savings groups," Journal of Development Economics, Elsevier, vol. 145(C).

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