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Intertemporal choice with liquidity constraints: Theory and experiment

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  • Stahl, Dale O.

Abstract

Since Thaler (1981), we have lived with the uncomfortable stylized fact that many humans choose strictly dominated actions in intertemporal choice experiments. We designed an experiment to probe the reasons for the apparently suboptimal behavior, and we find that the classic Fisher (1930) intertemporal choice theory with perceived transaction costs and liquidity constraints is perfectly consistent with our experimental data, whereas hyperbolic discounting is not.

Suggested Citation

  • Stahl, Dale O., 2013. "Intertemporal choice with liquidity constraints: Theory and experiment," Economics Letters, Elsevier, vol. 118(1), pages 101-103.
    • Handle: RePEc:eee:ecolet:v:118:y:2013:i:1:p:101-103
    DOI: 10.1016/j.econlet.2012.09.027
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    References listed on IDEAS

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    1. Victor R. Fuchs, 1982. "Economic Aspects of Health," NBER Books, National Bureau of Economic Research, Inc, number fuch82-1.
    2. Glenn W. Harrison & Morten I. Lau & Melonie B. Williams, 2002. "Estimating Individual Discount Rates in Denmark: A Field Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1606-1617, December.
    3. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    4. Victor R. Fuchs, 1982. "Time Preference and Health: An Exploratory Study," NBER Chapters, in: Economic Aspects of Health, pages 93-120, National Bureau of Economic Research, Inc.
    5. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    6. Fuchs, Victor R. (ed.), 1982. "Economic Aspects of Health," National Bureau of Economic Research Books, University of Chicago Press, number 9780226267852, April.
    7. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer;Economic Science Association, vol. 2(2), pages 107-127, December.
    8. Benhabib, Jess & Bisin, Alberto & Schotter, Andrew, 2010. "Present-bias, quasi-hyperbolic discounting, and fixed costs," Games and Economic Behavior, Elsevier, vol. 69(2), pages 205-223, July.
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    Cited by:

    1. Alex Barrachina & Eduardo Jiménez-Fernández, 2016. "Intertemporal strategic investment-consumption model: An example," Working Papers 2016/13, Economics Department, Universitat Jaume I, Castellón (Spain).
    2. Kathryn Zeiler, 2019. "Mistaken about mistakes," European Journal of Law and Economics, Springer, vol. 48(1), pages 9-27, August.
    3. Sergio Da Silva & Dinorá De Faveri & Ana Correa & Raul Matsushita, 2017. "High-income consumers may be less hyperbolic when discounting the future," Economics Bulletin, AccessEcon, vol. 37(3), pages 1421-1434.
    4. repec:ers:journl:v:vi:y:2018:i:2:p:68-82 is not listed on IDEAS
    5. Andrew G. Meyer, 2016. "Explaining the fixed cost component of discounting: the importance of students' liquidity constraints," Economics Bulletin, AccessEcon, vol. 36(1), pages 355-364.
    6. Leandro S. Carvalho & Stephan Meier & Stephanie W. Wang, 2016. "Poverty and Economic Decision-Making: Evidence from Changes in Financial Resources at Payday," American Economic Review, American Economic Association, vol. 106(2), pages 260-284, February.
    7. R.G. Akhmadeev & O.A. Bykanova & N.V. Philippova & I.V. Vashchekina & T.B. Turishcheva, 2018. "Macroeconomic Indicators and their Impact on the Foreign Debt Burden: The Case of BRICS Countries," International Journal of Economics & Business Administration (IJEBA), International Journal of Economics & Business Administration (IJEBA), vol. 0(2), pages 68-82.

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    More about this item

    Keywords

    Intertemporal choice; Liquidity; Present bias; Hyperbolic discounting;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D1 - Microeconomics - - Household Behavior
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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