Patience Auctions: The Impact of Time vs. Money Bidding on Elicited Discount Rates

Abstract

We introduce, test, and compare two auction-based methods for eliciting discount rates. In these “patience auctions”, participants bid the smallest future sum they would prefer -or- the longest time they would wait for a reward, rather than receive a smaller, immediate payoff. The most patient bidder receives the delayed reward; all others receive the immediate payoff. These auctions allow us to compare discounting when participants’ attention is focused on the temporal versus monetary dimension of delayed rewards. We find that the estimated parameters in the three most commonly used discount functions (exponential, hyperbolic, and quasi-hyperbolic) differ across these two bidding methods (time-bids vs. money-bids). Specifically, our participants tend to show more impatience under time-bids. Furthermore, we find that people are more likely to exhibit exponential (as opposed to hyperbolic) discounting and exhibit less present bias under time-bids, compared to money-bids. To our knowledge, this paper is the first to directly compare time versus money preference elicitations, within the same subjects, using an incentive-compatible mechanism.