The Impacts of Elicitation Mechanism and Reward Size on Estimated Rates of Time Preference

Abstract

We run experiments with real monetary rewards ranging from $10 to $500 to estimate rates of time preference and test for hyperbolic discounting. Individuals become more patient with increasing reward sizes, which is consistent with future transaction costs. Subjects are divided between two different elicitation mechanisms that should both theoretically provide an incentive for participants to reveal their true time preferences. We find evidence of present-bias in the data from the BDM mechanism but no present-bias from a second-price-sealed-bid mechanism. Accordingly, researchers should interpret results from experiments with small reward sizes and using one specific elicitation mechanism cautiously.