Wednesday, January 16, 2013

Hyperbolic Discounting and Consumption Goods

Time Inconsistency and Hyperbolic Discounting has made important inroads in Economics and seems one of the big areas of behavioral economics with large policy implications.

Ned Augenblick, Charles Sprenger and I just finished a new paper, “Working Over Time: Dynamic Inconsistency in Real Effort Tasks”. The abstract reads:
"Experimental tests of dynamically inconsistent time preferences have largely relied on choices over time-dated monetary rewards. Several recent studies have failed to find the standard patterns of time inconsistency. However, such monetary studies contain oftendiscussed confounds. In this paper, we sidestep these confounds and investigate choices over consumption (real effort) in a longitudinal experiment. We pair those effort choices with a companion monetary discounting study. We confirm very limited time inconsistency in monetary choices. However, subjects show considerably more present bias in effort. Furthermore, present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device. Therefore our findings validate a key implication of models of dynamic inconsistency, with corresponding policy implications."

A much longer title we however never seriously considered was: Working over time, but not taking care of business...

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