Abstract
This paper measures deviations from constant discounting and compares these deviations for health and money. Our measurements make no assumptions about utility and do not require separability of preferences over time. In an experiment, most subjects were decreasingly impatient, but a substantial minority was increasingly impatient. The deviations from constant discounting were more pronounced for health than for money suggesting that time preferences are domain-specific. Hyperbolic discounting (Loewenstein and Prelec, Quarterly Journal of Economics, 107, 573–597, 1992) and proportional discounting (Mazur, Quantitative Analyses of Behavior, 5, 55–73, 1987) best described time preferences. Quasi-hyperbolic discounting, the most popular model to accommodate deviations from constant discounting, was rejected for both health and money.
Highlights
Private and policy decisions often involve outcomes that occur at different points in time
Most evidence for decreasing impatience comes from studies using money outcomes, but it has been observed for other domains such as health and environmental outcomes (Bleichrodt and Johannesson 2001; Van der Pol and Cairns 2011; van der Pol and Cairns 2002; Khwaja et al 2007; Hardisty and Weber 2009; Cairns and Van der Pol 1997)
From Strotz (1955), we know that a decision maker who deviates from constant discounting may be prone to behave inconsistently over time and may have self-control problems, which lead to self-harming behaviors such as saving too little, addiction (Gruber and Köszegi 2001) and obesity (Scharff 2009; Ikeda et al 2010)
Summary
Private and policy decisions often involve outcomes that occur at different points in time. From Strotz (1955), we know that a decision maker who deviates from constant discounting may be prone to behave inconsistently over time and may have self-control problems, which lead to self-harming behaviors such as saving too little, addiction (Gruber and Köszegi 2001) and obesity (Scharff 2009; Ikeda et al 2010) These self-control problems, in turn, may increase the welfare benefits from policy. To assess the severity of departure from constant impatience, and, the vulnerability to self-control problems and the potential benefits from policy, the degree of decreasing impatience must be quantified Subjects deviated more from constant discounting for health than for money This domain-dependence of discounting suggests that evidence on time preferences for money has only limited validity for health. Quasi-hyperbolic discounting and constant discounting could be rejected for both health and money
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