Time-varying Time Preferences
Recommended citation: Holloway et al. (WP). "Time-varying Time Preferences." WP.
Abstract
Preference reversals in intertemporal choice have long been considered hallmarks of “present-biased” discounting. While a nascent literature posits that they could instead result from time-varying discounting, the evidence comes from T = 2 longitudinal studies that cannot identify whether time-variance is noise or systematic change. We implement a longitudinal discounting study with seven elicitations over a 12-week period, and find that subjects exhibit increasing discounting over the course of the study, and that time-variance in discounting explains roughly 72% of time-inconsistent choices in our data. We introduce a new discounting model, the Nested Exponential discount function, which permits any feasible configuration of Halevy (2015)’s three properties of time preference: time-invariance, time-consistency, and stationarity. The function nests both exponential discounting and present-biased discounting within its parameter space, enabling data-driven property configurations at both the aggregate and subject levels.