Estimating Representations of Time Preferences and Models of Probabilistic Intertemporal Choice on Experimental Data
35 Pages Posted: 11 Feb 2017 Last revised: 3 May 2017
Date Written: May 3, 2017
Abstract
We here estimate a number of alternatives to discounted-utility theory, such as quasi-hyperbolic discounting, generalized hyperbolic discounting, and rank-dependent discounted utility with three different models of probabilistic choice. The data come from a controlled laboratory experiment designed to reveal individual time preferences in two rounds of 100 binary-choice problems. Rank-dependent discounted utility and its special case—the maximization of present discounted value—turn out to be the best-fitting theory (for about two-thirds of all subjects). For a great majority of subjects (72%), the representation of time preferences in Luce’s choice model provides the best fit.
Keywords: Intertemporal choice, Time preference, Discounted utility, Quasi-hyperbolic discounting, Rank-dependent discounted utility
JEL Classification: D90
Suggested Citation: Suggested Citation