Complexity and Hyperbolic Discounting

Arbeitspapier

A large literature shows that people discount financial rewards hyperbolically instead of exponentially. While discounting of money has been questioned as a measure of time preferences, it continues to be highly relevant in empirical practice and predicts a wide range of real-world behaviors, creating a need to understand what generates the hyperbolic pattern. We provide evidence that hyperbolic discounting reflects mistakes that are driven by the complexity of evaluating delayed payoffs. In particular, we document that hyperbolicity (i) is strongly associated with choice inconsistency and cognitive uncertainty, (ii) increases in overt complexity manipulations and (iii) arises nearly identically in computationally similar tasks that involve no actual payoff delays. Our results suggest that even if people had exponential discount functions, complexity-driven mistakes would cause them to make hyperbolic choices. We examine which experimental techniques to estimate present bias are (not) confounded by complexity.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: CESifo Working Paper ; No. 10861

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Design of Experiments: Laboratory, Individual ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Financial Economics: General
• Thema: hyperbolic discounting ; present bias ; bounded rationality ; cognitive uncertainty

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Enke, Benjamin ; Graeber, Thomas ; Oprea, Ryan
• Ereignis: Veröffentlichung
• (wer): Center for Economic Studies and ifo Institute (CESifo)
• (wo): Munich
• (wann): 2023

Weitere Informationen

• Handle: http://hdl.handle.net/10419/282549
• Letzte Aktualisierung: 10.03.2025, 11:44 MEZ