are impatient farmers more risk averse evidence from a lab in the field experiment in rural uganda based on data from a field experiment in rural uganda we show that impatient farmers are more risk averse than patient farmers we relied on a simplified version of the convex time budget ctb method to elicit farmers time preferences and on an independent method for eliciting their risk preferences we report two important findings first we show that our simplified ctb method applied to farmers from uganda replicates the key findings of andreoni and sprenger s lab experiments that involved student subjects second we establish the existence of a negative correlation between risk tolerance and impatience based on two independent measures

how general are time preferences eliciting good specific discount rates abstract this paper tests the commonly used assumption that people apply a single discount rate to the utility from different sources of consumption using survey data from uganda with both hypothetical and incentivized choices over different goods we elicit time preferences from about 2400 subjects we reject the null of equal discount rates across goods the average person in our sample is more impatient about sugar meat and starchy plantains than about money and a list of other goods we review the assumptions to recover discount rates from experimental choices for the case of good specific discounting consistently with the theoretical framework we find convergence in discount rates across goods for two groups expected to engage in or think about arbitraging the rewards traders and individuals with large quantities of the good at home as an application we evaluate empirically the conditions under which good specific discounting could predict a low asset poverty trap

competition between exchanges a research agenda this paper describes open research questions related to the competition and market structure of financial exchanges and argues that only a combination of industrial organization and finance can satisfactorily attack these questions two examples are discussed to illustrate how the combination of these two approaches can significantly enrich the analysis the network externality puzzle which refers to the question of why trading for the same security is often split across trading venues and the impact of the multi sided character of financial exchanges on pricing and profitability

time inconsistent preferences and the annuitization decision good news can involve difficult decisions for example winning a lottery jackpot can go along with the decision whether to have the jackpot paid out immediately as a lump sum or as periodic annual payments also when entering retirement most people face the decision whether they want their defined contribution account balance paid as a lump sum or to annuitize that amount the fact that people tend to choose the lump sum even if economic reasons suggest that they should choose the annuity is called the annuity paradox in a large online survey we find that people behave time inconsistent older people have a stronger tendency to choose the lump sum than younger people when they are asked to predict today what to choose when they retire this effect is considerably stronger for participants that answer simple time preference questions inconsistently our findings suggest to think about precommitment devices for the annuitization decision in the retirement case already at the time when the defined benefit plan is started

an experiment on time preference and misprediction in unpleasant tasks we experimentally investigate the time inconsistent taste for immediate gratification and future preference misprediction across 7 weeks 100 participants choose the number of unpleasant transcription tasks given various wages to complete immediately and at different future dates participants preferred 10 12 fewer tasks in the present compared to any future date leading to an estimated of 0 83 comparing predictions with actual immediate work choices provides evidence against substantial sophistication with estimates implying that participants understand no more than 24 of their present bias finally we find evidence of projection bias participants wished to complete 4 12 fewer tasks when decisions were elicited right after completing tasks rather than before

wealth accumulation over the life cycle and precautionary savings this article constructs and simulates a life cycle model of wealth accumulation and estimates the parameters of the utility function the rate of time preference and the coefficient of risk aversion by matching the simulated median wealth profiles with those observed in the panel study of income dynamics and in the survey of consumer finances the estimates imply a low degree of patience and a high degree of risk aversion the results are used to study the importance of precautionary savings in explaining wealth accumulation they imply that wealth accumulation is driven mostly by precautionary motives at the beginning of the life cycle whereas savings for retirement purposes become significant only closer to retirement

discount rates and credit markets theory and evidence from rural india three models of credit markets 1 the permanent income model 2 upward sloping credit supply to individual borrowers and 3 constrained credit due to imperfect enforcement are tested using credit market data and an experimental study of individuals discount rates in south india the permanent income model is rejected by both the discount rate and the credit market data the discount rate data are consistent with either of the other two models while the credit market data are consistent with a combination of these two models other explanations are found to be insufficient to explain the results of this study

measuring discounting without measuring utility we introduce a new method to measure the temporal discounting of money unlike preceding methods our method requires neither knowledge nor measurement of utility it is easier to implement clearer to subjects and requires fewer measurements than existing methods

estimating the gains from trade in limit order markets we present a method to estimate the gains from trade in limit order markets and provide empirical evidence that the limit order market is a good market design using observations on order submissions and execution and cancellation histories we estimate both the distribution of traders unobserved valuations for the stock and latent trader arrival rates we use the resulting estimates to compute the current gains from trade the gains from trade in a perfectly liquid market and the gains from trade with a monopoly liquidity supplier the current gains are 90 of the maximum gains and 150 of the monopolist gains the majority of the world s stock exchanges operate some form of a limit order market a feature of good market design is that traders realize most of the potential gains from trade we develop a method for identifying and estimating the gains from trade in a limit order market and apply our method to a sample from a particular limit order market the vancouver stock exchange vse we find that gains from trade in the vse are approximately 90 of the gains from trade in a perfectly liquid market and approximately 50 more than gains from trade in a market in which liquidity is supplied by a profit maximizing monopolist our results therefore provide new empirical evidence that the limitorder market is a good market design a large number of experimental studies document that the gains from trade in a double auction are close to the maximum gains from trade see for example cason and friedman 1996 or the survey by holt 1995 similarly our empirical results show that the limit order market a market design similar to

working over time dynamic inconsistency in real effort tasks experimental tests of dynamically inconsistent time preferences have largely relied on choices over time dated monetary rewards several recent studies have failed to nd the standard patterns of present bias however such monetary studies contain oftendiscussed confounds in this paper we sidestep these confounds and investigate choices over consumption real eort in a longitudinal experiment we pair this eort study with a companion monetary discounting study we conrm very limited time inconsistency in monetary choices however subjects show considerably more present bias in eort furthermore present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device therefore our ndings validate a key implication of models of dynamic inconsistency with corresponding policy implications

axiomatization and measurement of quasi hyperbolic discounting this article provides an axiomatic characterization of quasi hyperbolic discounting and a more general class of semi hyperbolic preferences we impose consistency restrictions directly on the intertemporal trade offs by relying on what we call annuity compensations our axiomatization leads naturally to an experimental design that disentangles discounting from the elasticity of intertemporal substitution in a pilot experiment we use the partial identification approach to estimate bounds for the distributions of discount factors in the subject pool consistent with previous studies we find evidence for both present and future bias jel codes c10 c99 d03 d90

inferring discount rates from time preference experiments abstract we observe that identification of the discount rate from experimental data requires an assumption about the consumption period the length of time over which a payment will be turned into utility providing consumption we show that the optimal consumption period is substantially longer than assumed in previous studies when the consumption period is allowed to take on more reasonable values the discount rates implied by experimental choices are unreasonably large and relatively insensitive to assumptions about utility curvature

evidence on discrimination in mortgage lending much of the controversy about whether mortgage lenders discriminate against minorities can be explained in terms of the confusion about how to define discrimination based on the legal definition careful studies of loan denial rates such as that done by the federal reserve bank of boston represent an appropriate method for testing for discrimination by lenders based on that study it is quite clear that lenders discriminate the fact that minorities have higher default rates on average than whites is irrelevant to the interpretation of the race coefficient in such models nonetheless more research on and discussion about the relationship between the race of the applicant and delinquencies defaults and losses would be desirable

trading volume and asset liquidity since the depth and liquidity of a market depend on the entry decisions of all potential participants each trader assesses them according to conjectures about entry by others if trade is equally costly across markets this externality leads to the concentration of trade on one market if not it can produce multiple conjectural equilibria some where trade concentrates on one market and others where large traders resort to a separate market or to search for a trading partner while fragmentation is welfare reducing in the two market case no such ranking is possible if it involves off exchange search

linking risk aversion time preference and fertilizer use in burkina faso this paper investigates whether burkinabe maize farmers fertilizer use decisionsare correlated with their risk and time preferences we conducted a survey and a se ries of hypothetical experiments on a sample of 1 500 farmers we find that morepatient farmers do use more fertilizer but it is only because they plant more maize afertilizer intensive crop rather than because they use more fertilizer per hectare ofmaize planted conversely we find no statistically significant link between risk aver sion and fertilizer use we use a simple two period model which suggests that riskaversion may indeed have an ambiguous effect on fertilizer use

social motives vs social influence an experiment on interdependent time preferences we report experimental evidence on the effects of social preferences on intertemporal decisions to this aim we design an intertemporal dictator game to test whether dictators modify their discounting behavior when their own decision is imposed on their matched recipients we run four different treatments to identify the effect of payoffs externalities from those related to information and beliefs our descriptive statistics show that heterogeneous social time preferences and information about others time preferences are significant determinants of choices dictators display a marked propensity to account for the intertemporal preferences of recipients both in the presence of externalities social motives and or when they know about the decisions of their matched partners social influence we also perform a structural estimation exercise to control for heterogeneity in risk attitudes as for individual behavior our estimates confirm previous studies in that high risk aversion is associated with low discounting as for social behavior we find that social motives outweigh social influence especially when we restrict our sample to pairs of dictators and recipients who satisfy minimal consistency conditions

gender differences in firm performance evidence from new ventures in the united states abstract prior studies examining the performance of female and male owned firms have generally reported that female owned firms underperform male owned firms however it is conceivable that the performance measures used by previous studies and or their inability to control for key demographic differences may have contributed to this finding for example few studies use size adjusted performance measures and yet we know that female owned firms tend to be smaller than their male counterparts similarly risk is typically not considered even though evidence suggests that women tend to be more risk averse than men we use a longitudinal five year database of more than 4000 new ventures that began operations in the u s in 2004 to determine whether potential differences in the performances of female and male owned firms disappear when appropriate performance measures are used and important demographic differences are controlled for in the models the performance measures we examine include 4 year closure rates return on assets roa and a risk adjusted measure sharpe ratio univariate test results confirm our expectation based on both liberal and social feminist theory that there is no difference in the performance of female and male owned new ventures provided performance is appropriately measured further these results are supported by our multivariate analyses which control for demographic differences such as industry experience and hours worked our findings should be of interest to researchers financiers advisors and policy makers perhaps more importantly our findings should also ensure that women who are contemplating starting a new venture are not discouraged from doing so by a false belief that new ventures initiated by women are less likely to succeed than those initiated by men

risk preferences are not time preferences on the elicitation of time preference under conditions of risk comment andreoni and sprenger 2012a b report evidence that distinct utility functions govern choices under certainty and risk i investigate the robustness of this result to the experimental design i find that the effect disappears completely when a multiple price list instrument is used instead of a convex time budget design alternatively the effect is reduced by half when sooner and later payment risks are realized using a single lottery instead of two independent lotteries the result is thus at least partially driven by intertemporal diversification supporting an explanation in terms of concavity of the intertemporal and not only atemporal utility function jel c91 d81 d91

a theory of intergenerational altruism modeling intergenerational altruism is crucial to evaluate the long term consequences of current decisions and requires a set of principles guiding such altruism we axiomatically develop a theory of pure direct altruism altruism is pure if it concerns the total utility rather than the mere consumption utility of future generations and direct if it directly incorporates the utility of all future generations our axioms deliver a new class of altruistic forward looking preferences whose weight put on the consumption of a future generation generally depends on the consumption of other generations the only preferences lacking this dependence correspond to the quasi hyperbolic discounting model which our theory characterizes our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences

eliciting discount functions when baseline consumption changes over time abstract many empirical studies on intertemporal choice report preference reversals in the sense that a preference between a small reward to be received soon and a larger reward to be received later reverses as both rewards are equally delayed such preference reversals are commonly interpreted as contradicting constant discounting this interpretation is correct only if baseline consumption to which the outcomes are added remains constant over time the difficulty with measuring discounting when baseline consumption changes over time is that delaying an outcome has two effects 1 due to the change in baseline consumption it changes the utility from receiving the outcome and 2 it changes the factor by which this utility is discounted in this paper we propose a way to disentangle the two effects which allows us to draw conclusions about discounting even when baseline consumption changes over time

gender training and female empowerment experimental evidence from vietnam we combine an rct and a lab in the field experiment to explore how participating in an entrepreneurship and gender training affects the intra household bargaining position of women while male preferences dominate household decisions the training attenuates the bargaining gap considerably inviting husbands to participate in the training does not further improve outcomes

cross sided liquidity externalities we study the empirical relevance of the participation externality between liquidity suppliers makers and demanders takers i e whether liquidity demand attracts or reduces liquidity supply and vice versa we use exogenous shocks to exchange fees and technology as experiments to identify cross sided complementarities between liquidity suppliers and demanders in the u s equity market we find that the externality is large and positive on average however the externality is negative in periods of high adverse selection we quantify the economic significance of the externality by evaluating an exchange s revenue after a fee change the internet appendix is available at https doi org 10 1287 mnsc 2016 2658 this paper was accepted by lauren cohen finance

imperfect competition in financial markets an empirical study of island and nasdaq the competition between island and nasdaq at the beginning of the century offers a natural laboratory to study competition between and within trading platforms and its consequences for liquidity supply our empirical strategy takes advantage of the difference between the pricing grids used on island and nasdaq as well as of the decline in the nasdaq tick using the finer grid prevailing on their market island limit order traders undercut nasdaq quotes much more than they undercut one another the drop in the nasdaq tick size triggered a drop in island spreads despite the island tick already being very thin before nasdaq decimalization we also estimate a structural model of liquidity supply and find that island limit order traders earned rents before nasdaq decimalization our results suggest that perfect competition cannot be taken for granted even on transparent open limit order books with a very thin pricing grid

consolidation fragmentation and market performance this paper studies the impact of market consolidation or fragmentation on its performance examining four alternative models of exchange a consolidated clearing house fragmented clearing houses a monopoly dealer market and an interdealer market the effects of the market mechanism on the expected quantity traded the price variance faced by individual traders the quality of market price signals the expected gains from trade and the exchange implementation costs are studied

do individuals have preferences used in macro finance models an experimental investigation recent financial studies often assume that agents have epstein zin preferences preferences that require agents to care about when uncertainty is resolved under this recursive preference framework the preference for uncertainty resolution is entirely determined by an agent s preferences for risk and intertemporal substitution to test the implications of this model this paper presents an experiment designed to elicit subject preferences on risk time intertemporal substitution and uncertainty resolution results reveal that most subjects prefer early resolution of uncertainty and have relative risk aversion greater than the reciprocal of the elasticity of intertemporal substitution consistent with the predictions by recursive preferences subjects are classified in a finite mixture model by their risk time and intertemporal substitution parameters regression results show that types predicted by the epstein zin model to prefer early resolution choose early resolution with 20 50 higher probabili

normality of demand in a two goods setting we study the testable implications of normal demand in a two goods setting for a finite dataset on prices and quantities we present the revealed preference conditions for normality of one or both goods our characterization provides an intuitive extension of the well known weak axiom of revealed preference and is easy to use in practice we illustrate the empirical relevance of our theoretical results through an application to the experimental dataset presented in andreoni and miller 2002

present bias quasi hyperbolic discounting and fixed costs in this paper we elicit preferences for money time pairs via experimental techniques we estimate a general specification of discounting that nests exponential and hyperbolic discounting as well as various forms of present bias including quasi hyperbolic discounting our experimental data do not appear peculiar in any dimension in particular we find clear evidence for present bias as most of the previous literature however no evidence for quasi hyperbolic discounting is found and the data strongly favor instead a specification with a small present bias in the form of a fixed cost of the order of 4 on average across subjects with such a fixed cost the curvature of discounting is imprecisely estimated and exponential discounting is hardly rejected in this specification the present bias tends to vanish for economically relevant monetary rewards

what are the headwaters of formal savings experimental evidence from sri lanka the world s poor are seeing a rapid expansion in access to formal savings accounts what is the source of savings when households are connected to a formal account we combine a high frequency panel survey spanning two and a half years with an experiment in which a sri lankan bank used mobile point of service pos terminals to collect deposits directly from households each week we find that the headwaters of formal savings lie in sacrificed leisure time households work more and improved savings options generate an increase in labour effort in both self employment and in the wage market the results suggest that the labour allocation channel is an important mechanism linking savings opportunities to income

alcohol and self control a field experiment in india this paper studies alcohol consumption among low income workers in india in a 3 week field experiment the majority of 229 cycle rickshaw drivers were willing to forgo substantial monetary payments in order to set incentives for themselves to remain sober thus exhibiting demand for commitment to sobriety randomly receiving sobriety incentives significantly reduced daytime drinking while leaving overall drinking unchanged i find no evidence of higher daytime sobriety significantly changing labor supply productivity or earnings in contrast increasing sobriety raised savings by 50 percent an effect that does not appear to be solely explained by changes in income net of alcohol expenditures

procedures for eliciting time preferences we study three procedures to elicit attitudes toward delayed payments the becker degroot marschak procedure the second price auction and the multiple price list the payment mechanisms associated with these methods are widely considered as incentive compatible thus if preferences satisfy procedure invariance which is also widely and often implicitly assumed they should yield identical time preference distributions we find instead that the monetary discount rates elicited using the becker degroot marschak procedure are significantly lower than those elicited with a multiple price list we show that the behavior we observe is consistent with an existing psychological explanation of preference reversals

intertemporal choice with liquidity constraints theory and experiment 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

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

how not to pay field experimental evidence on the design of redd payments abstract payments for ecosystem services pes can use many design features we investigate the impact of payment conditionality types i e different specifications when to pay and when not to pay for pes on deforestation and agricultural production in a lab in the field experiment our experiment also tests variations in contract period and payment volatility we designed a highly visual simulation game to characterize the decision situation of a cattle rancher in brazil the player can expand extensive pasture by deforestation or intensify existing pasture the model includes both a land and a capital constraint we applied the game in an economic framed lab in the field experiment in tocantins brazil payments conditional on forest carbon stock lead to slow but steady deforestation while payments conditional on forest carbon stock change suppressed deforestation more strongly but payments conditional on stock increase cattle production while payments conditional on stock change have no effect on production thus depending on the level of leakage either type of conditionality can be more cost effective in reducing global carbon emissions contracts with limited periods lead to strong deforestation after the end of the payment period payment volatility had no significant effect

comment on risk preferences are not time preferences separating risk and time preference andreoni and sprenger 2012a b observe that utility functions are distinct for risk and time preferences and show that their findings are consistent with a preference for certainty we revisit this question in an enriched experimental setting in which subjects make intertemporal decisions under different risk conditions the observed choice behavior supports a separation between risk attitude and intertemporal substitution rather than a preference for certainty we further show that several models including epstein and zin 1989 chew and epstein 1990 and halevy 2008 exhibit such a separation and can account for the overall experimental findings jel c91 d81 d91 risk and time preferences are the cornerstones of economic analyses regarding risk preference expected utility eu has been the predominant theory in which the curvature of the utility index captures risk attitude regarding time preference discounted utility is the most widely used model in which the curvature of the utility index captures intertemporal substitution when risk and time are intertwined integrating the two theories yields discounted expected utility deu which evaluates a contingent consumption plan c c c 3 as follows

family specific investments and divorce with dynamically inconsistent households marital contracts and policy abstract this paper bridges two distinct areas of inquiry the economic theory of the family and behavioral research on time inconsistent preferences motivated by anecdotal and survey evidence suggesting that present bias plays a role in intra household decision making we propose a model in which hyperbolic discounting couples engage in home production activities thereby accumulating family specific capital over time at any given point in time the gains to continued marriage depend on the accumulated stock of this capital and a temporary random shock to match quality couples whose match quality deteriorates may choose to divorce and this is more likely to happen if past investments in family specific capital have been low we obtain three main sets of results first present biased preferences induce couples to underinvest in family specific capital and to overdivorce second sophisticated couples but not naive ones may choose to enter marriage on terms which make divorce more costly to obtain third the inefficiencies in the behavior of time inconsistent couples can be completely undone by means of earnings and divorce taxes that vary over the marital life cycle

competition among trading venues information and trading on electronic communications networks this paper explores the competition between two trading venues electronic communication networks ecns and nasdaq market makers ecns oier the advantages of anonymity and speed of execution which attract informed traders thus trades are more likely to occur on ecns when information asymmetry is greater and when trading volume and stock return volatility are high ecn trades have greater permanent price impacts and more private information is revealed through ecn trades than though market maker trades however ecn trades have higher ex ante trading costs because market makers can preference or internalize the less informed trades and oier them better executions technological innovations that enable high speed low cost electronic trading systems are dramatically changing the structure of nancial markets exchanges and markets around the world are merging or forming alliances to improve liquidity and reduce costs in the face of increased competition from each other and from these computerized trading systems trading volume on electronic communications networks ecns has grown rapidly over the past several years ecns are now involved in more than a third of nasdaq trading volume and are attempting to increase their market share in nyse listed

attention driven demand for bonus contracts abstract in many markets supply contracts include a series of small regular payments made by consumers and a single large bonus that consumers receive at some point during the contractual period but if for instance its production costs exceed its value to consumers such a bonus creates inefficiencies we offer a novel explanation for the frequent occurrence of bonus contracts which builds on a model of attentional focusing our main result identifies market conditions under which bonus contracts should be observed while a monopolist pays a bonus to consumers if at all only for low value goods firms standing in competition always i e independent of the consumers valuation offer bonus contracts thus competition does not eliminate but rather exacerbates inefficiencies arising from contracting with focused agents common contract schemes in markets for electricity telephony and bank accounts are consistent with our model but cannot be reconciled with alternative approaches such as models on consumption smoothing quasi hyperbolic discounting or switching costs

individual preferences and the exponential growth bias abstract the exponential growth bias egb refers to individuals underestimation of the effects of exponential growth and has been shown to affect important financial decisions such as retirement savings we develop and test a novel experimental design to evaluate the magnitude of the egb based on multiple price lists our design simultaneously elicits the egb as well as subjects utility curvatures and time preferences allowing for non linear utility we structurally estimate the magnitude of the egb as about half as large as when linear utility is assumed these results shed light on the relationship between individual preferences and the egb

discounting the distant future an experimental investigation we use a laboratory experiment to elicit discount rates over a 20 year time horizon using government savings bonds as a payment vehicle when using a constant exponential discount rate function we find an implied average discount rate of 4 9 which is much lower than has been found in previous experimental studies that used time horizons of days or months however we also find strong support for non constant declining discount rates for longer time horizons with an extrapolated implied annual discount rate approaching 0 5 in 100 years there is heterogeneity in discount rates and risk preferences in that people with more optimistic beliefs about technological progress have higher discount rates these findings contribute to the debate over the appropriate discount rate to use in comparing the long term benefits of climate change mitigation to the more immediate costs

trading fees and efficiency in limit order markets competition among trading platforms has considerably reduced trading fees in stock markets we show that this evolution is not necessarily beneficial to investors although they increase gains from trade when a trade happens lower trading costs can induce investors to post limit orders with a smaller execution probability in this case gains from trade are realized less frequently and investors can be worse off our model has testable implications for the effects of trading fees and their breakdown between liquidity suppliers and liquidity demanders on limit order fill rates and bid ask spreads

time discounting for primary and monetary rewards this paper reports a positive and statistically significant relation between short term discount rates elicited with a monetary and a primary reward chocolate the relation is most evident among people who like chocolate and are hungry this finding suggests that high short term discount rates are related to an underling individual trait consistent with models of presentbiased preferences

behavior based pricing in vertically differentiated industries we study behavior based pricing bbp in a vertically differentiated model vertical differentiation is innately asymmetric because all customers prefer the higher quality product when prices are equal this asymmetry causes bbp to have different properties than symmetric horizontally differentiated models we highlight two dimensions that affect the analysis the role of quality adjusted cost differences between the firms and the role of consumer discounting relative to firm discounting in the second period consistent with the prior literature we find that there are conditions based on market shares and quality adjusted costs under which either the low quality firm or the high quality firm but not both will reward its current customers with lower prices than it charges to new customers we then consider whether these conditions can arise in a two period equilibrium we find that if consumers sufficiently discount the future periods then firms at enough of a competitive disadvantage will reward their customers i e the low quality firm will reward its current customers if the quality adjusted cost differential between the two firms is small while the high quality firm will reward its current customers if this cost differential is large conversely we find that if consumers do not discount the future very much then the firm at a competitive disadvantage i e a low quality firm competing against a low cost high quality firm or a high quality firm that has very high costs can earn greater profits with bbp than without bbp although there are cases where both firms may benefit from bbp this paper was accepted by j miguel villas boas marketing

liquidity based competition for order flow we present a microstructure model of competition for order flow between exchanges based on liquidity provision we find that neither a pure limit order market plm nor a hybrid specialist limit order market hm structure is competition proof a plm can always be supported in equilibrium as the dominant market i e where the hybrid limit book is empty but an hm can also be supported for some market parameterizations as the dominant market we also show the possible coexistence of competing markets order preferencing that is decisions about where orders are routed when investors are indifferent is a key determinant of market viability welfare comparisons show that competition between exchanges can increase as well as reduce the cost of liquidity active competition between exchanges for order flow in cross listed securities is intense in the current financial marketplace examples include rivalries between the new york stock exchange nyse crossing networks and ecns and between the london stock exchange the paris bourse and other continental markets for equity trading and between eurex and london international financial futures and options exchange liffe for futures volume while exchanges compete along many dimensions e g payment for order flow transparency execution speed liquidity and price improvement will in our view be the key variables driving competition in the future over time high cost markets should be driven out of business as investors switch to cheaper trading venues moreover market structure is increasingly singled out by regulators exchanges and other market participants as a major determinant of liquidity 1

income and consumption a micro semistructural analysis with pervasive heterogeneity we develop a model of consumption and income that allows for pervasive heterogeneity in the parameters of both processes introducing codependence between household income parameters and preference

discounting behavior a reconsideration we re evaluate the theory experimental design and econometrics behind claims that individuals exhibit non constant discounting behavior theory points to the importance of controlling for the non linearity of the utility function of individuals since the discount rate is defined over time dated utility flows and not flows of money it also points to a menagerie of functional forms to characterize different types of non constant discounting behavior the implied experimental design calls for individuals to undertake several tasks to allow us to identify these models and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments the implied econometrics calls for structural estimation of the theoretical models allowing for joint estimation of utility functions and discounting functions using data collected from a representative sample of 413 adult danes in 2009 we draw striking conclusions assuming an exponential discounting model we estimate discount rates to be 5 6 on average this is significantly lower than all previous estimates using controlled experiments we also find no evidence to support quasi hyperbolic discounting or fixed cost discounting and only modest evidence to support other specifications of non constant discounting furthermore the evidence for non constant discounting while statistically significant is not economically significant in terms of the size of the estimated discount rates we undertake extensive robustness checks on these findings including a detailed review of the previous comparable literature

credit constraints and the measurement of time preferences incentivized experiments are often used to identify the time preferences of households in developing countries we argue theoretically and empirically that experimental measures may not identify pr

discounting financial literacy time preferences and participation in financial education programs many policymakers and economists argue that financial literacy is key to financial well being but why do many individuals remain financially illiterate despite the benefits of being financially informed this paper presents results from a field study linking individual decisions to acquire financial information to a normally unobservable characteristic time preferences we elicited time preferences using incentivized choice experiments for all individuals to whom a financial education program was offered our results show that individuals who choose to acquire personal financial information have substantially higher discount factors than individuals who do not the results can be interpreted as non participants discount the benefits of being financially literate more

present bias and collective dynamic choice in the lab we study collective decisions by time discounting individuals choosing a common consumption stream we show that with any heterogeneity in time preferences utilitarian aggregation necessitates a present bias in lab experiments three quarters of social planners exhibited present biases and less than two percent were time consistent roughly a third of subjects acted as if they were pure utilitarians and the rest chose as if they also had varying degrees of distributional concerns

hyperbolic discounting and the standard model eliciting discount functions abstract experiments on static intertemporal choice find evidence of particularly extreme impatience toward immediate rewards while this is often taken as support for hyperbolic discounting it could also arise because the most likely participants in experiments may be those with the most immediate need for money we conduct a calibration exercise and find that the extreme impatience observed in experiments can be accommodated by a standard exponential discounting model with no discounting and expectation of a small increase in the base consumption level the calibration uses existing estimates of curvature of utility

informed traders and limit order markets abstract we consider a dynamic limit order market in which traders optimally choose whether to acquire information about the asset and the type of order to submit we numerically solve for the equilibrium and demonstrate that the market is a volatility multiplier prices are more volatile than the fundamental value of the asset this effect increases when the fundamental value has high volatility and with asymmetric information across traders changes in the microstructure noise are negatively correlated with changes in the estimated fundamental value implying that asset betas estimated from high frequency data will be incorrect

make take structure and market quality evidence from the u s options markets we examine the make take structure which compensates liquidity suppliers and charges liquidity demanders in the options markets where it competes with a traditional structure that uses payments for order flow using the introduction of the make take structure as an event we find that execution costs including fees for liquidity demanders decline after the event for the affected options that the make take structure encourages market makers to improve quoted prices and that brokers change their routing behavior to include fees in the routing decision the decline in execution costs is consistent with the benefits of the increased quote competition from the make take structure prevailing over the fees the structure charges to liquidity demanders this paper was accepted by wei jiang finance

judging experimental evidence on dynamic inconsistency abstract this article briefly summarizes and judges recent experimental developments exploring the predictions of dynamically inconsistent models an opinion is provided as to how the literature ma

endogenous time horizon and behavioral poverty trap theory and evidence from mozambique abstract this paper provides a model where a long term planning horizon improves economic decisions but also increases the salience of anticipated future utility hence a gloomy future induces the agent to shorten her time horizon in order to reduce distress caused by the anticipation of poverty at the cost of worsening her realized future consumption resulting in a behavioral poverty trap where poverty and shortsightedness reinforce each other the paper also provides primary empirical evidence of the endogenous determination of time horizon and of the existence of a behavioral poverty trap using a randomized controlled trial in mozambique that provided agro input subsidies and a matched savings program i show that improvement in economic prospects resulted in a significant increase in the planning horizon of the poor beneficiaries moreover the increase in horizon significantly predicts asset accumulation of beneficiaries during the two years following the intervention

discounting by intervals a generalized model of intertemporal choice according to most models of intertemporal choice an agent s discount rate is a function of how far the outcomes are removed from the present and nothing else this view has been challenged by recent studies which show that discount rates tend to be higher the closer the outcomes are to one another subadditive discounting and that this can give rise to intransitive intertemporal choice we develop and test a generalized model of intertemporal choice the discounting by intervals dbi model according to which the discount rate is a function of both how far outcomes are removed from the present and how far the outcomes are removed from one another the model addresses past challenges to other models most of which it includes as special cases as well as the new challenges presented in this paper our studies show that when the interval between outcomes is very short discount rate tends to increase with interval length superadditive discounting in the discussion we place our model and evidence in a broader theoretical context

do lottery payments induce savings behavior evidence from the lab this paper presents the results of a laboratory experiment designed to investigate whether the option of a prize linked savings pls product alters the likelihood that subjects choose to delay payment by comparing pls and standard savings products in a controlled way we nd strong evidence that a pls payment option leads to greater rates of payment deferral than does a straightforward interest payment option of the same expected value the appeal of the pls option is strongest among men and selfreported lottery players we use the results of our experiment to structurally estimate the parameters of the decision problem governing time preference risk aversion and probability weighting we employ the parameter estimates in a series of policy simulations that compare the relative eectiveness of pls products as compared to standard

time matters less when outcomes differ unimodal vs cross modal comparisons in intertemporal choice unimodal intertemporal decisions involve comparing options of the same type e g apples now versus apples later and cross modal decisions involve comparing options of different types e g a car now versus a vacation later as we show existing models of intertemporal choice do not allow time preference to depend on whether the comparisons to be made are unimodal or cross modal we test this restriction in an experiment using the delayed compensation method a new extension of the standard method of eliciting intertemporal preferences that allows for assessment of time preference for nonmonetary and discrete outcomes as well as for both cross modal and unimodal comparisons participants were much more averse to delay for unimodal than cross modal decisions we provide two potential explanations for this effect one drawing on multiattribute choice the other drawing on construal level theory data are available at https doi org 10 1287 mnsc 2016 2613 this paper was accepted by yuval rottenstreic

decision environment effects on intertemporal financial choices how relevant are resource depletion models a large literature in psychology studies the effects of the immediate decision environment on behavior and conceptualizes both cognitive capacity and self control as scarce resources that can be depleted by recent use and replenished by factors like rest and nutrition we assess the relevance of resource depletion models for intertemporal financial decisions by estimating the effects of three interventions prior impulse controlling activity consumption of a sugared drink and consumption of a placebo sugar free drink on intertemporal monetary choices in a cash advance framework these manipulations have large impacts on the demand for advances but contrary to resource based models prior impulse controlling activity and placebo drink consumption increase patience to understand these effects we estimate treatment effects on the three parameters of a decision utility model for every subject in our sample all treatments reduce utility curvature and present bias and these movements are highly correlated together we argue that these patterns suggest that the treatments are acting not on subjects fundamental utility parameters but on subjects tendencies to frame financial decisions narrowly within the frame of the lab experiment versus broadly in the context of their other financial options thus while decision environments have large effects on intertemporal financial decisions both the direction and the mechanisms underlying these effects appear to be quite different from those suggested by resource depletion models

tying odysseus to the mast evidence from a commitment savings product in the philippines we designed a commitment savings product for a philippine bank and implemented it using a randomized control methodology the savings product was intended for individuals who want to commit now to restrict access to their savings and who were sophisticated enough to engage in such a mechanism we conducted a baseline survey on 1777 existing or former clients of a bank one month later we offered the commitment product to a randomly chosen subset of 710 clients 202 28 4 percent accepted the offer and opened the account in the baseline survey we asked hypothetical time discounting questions women who exhibited a lower discount rate for future relative to current trade offs and hence potentially have a preference for commitment were indeed significantly more likely to open the commitment savings account after twelve months average savings balances increased by 81 percentage points for those clients assigned to the treatment group relative to those assigned to the control group we conclude that the savings response represents a lasting change in savings and not merely a short term response to a new product

estimating individual discount rates in denmark a field experiment we estimate individual discount rates with respect to time streams of money using controlled laboratory experiments these discount rates are elicited by means of field experiments involving real monetary rewards the experiments were carried out across denmark using a representative sample of 268 people between 19 and 75 years of age individual discount rates are estimated for various households differentiated by socio demographic characteristics such as income and age our conclusions are that discount rates are constant over the 12 month to 3 year horizons used in these experiments and that discount rates vary substantially with respect to several socio demographic variables hence we conclude that it would be reasonable to assume constant discount rates for specific household types but not the same rates across all households

multimarket trading and market liquidity when a security trades at multiple locations simultaneously an informed trader has several avenues in which to exploit his private information the greater the proportion of liquidity trading by large traders who can split their trades across markets the larger is the correlation between volume in different markets and the smaller is the informativeness of prices we show that one of the markets emerges as the dominant location for trading in that security when informed traders can use their information for more than one trading period the timely release of price information by market makers at one location adversely affects the profits informed traders expect to make subsequently at other locations market makers competing to offer the lowest cost of trading at their location consequently deter informed trading be voluntarily making the price information public and by cracking down on insider trading article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

estimating time preferences from convex budgets experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision making such high rates are often attributed to present biased discounting a well known bias of standard measurements is the assumption of linear consumption utility attempting to correct this bias using measures of risk aversion to identify concavity researchers find reasonable discounting but at the cost of exceptionally high utility function curvature we present a new methodology for identifying time preferences both discounting and curvature from simple allocation decisions we find reasonable levels of both discounting and curvature and surprisingly dynamically consistent time preferences jel c91 d12 d81 understanding and estimating time preferences is obviously of great importance to economists marketers and policy makers consumers decide how much to invest in savings education real estate and life insurance how much to diet exercise and smoke whether to marry when to have children and what to leave in their wills while there has been substantial research estimating time preferences using aggregate consumption data 1 the bulk of the effort has occurred in laboratory environments 2 among the many laboratory techniques employed recent studies have favored multiple price lists mpl with monetary payments 3 with mpls individuals are asked multiple times to choose between smaller payment amounts closer to the present and larger amounts further into the future the interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval

consume now or later time inconsistency collective choice and revealed preference this paper develops a revealed preference methodology for exploring whether time inconsistencies in household choice are the product of nonstationarities at the individual level or the result of individual heterogeneity and renegotiation within the collective unit an empirical application to household level microdata highlights that an explicit recognition of the collective nature of choice allows the vast majority of household behaviour to be rationalised by theory that assumes preference stationarity at the individual level for our particular short panel data set simply permitting limited intrahousehold heterogeneity in time preferences allows the choices of 98 4 of the sample to be rationalised by a model that assumes exponential discounting at the individual level we also find that couples characterized by lower divergence in spousal discount rates are older more likely to have children and wealthier which we take as indications of experiencing higher match quality

reversal and magnitude effects in long term time preferences results from a field experiment we use a multiple price list approach with real payments to elicit long term time preferences on a sample of french farmers elicited individual discount rates vary with the time delay which supports the existence of a reversal effect in long term time preferences and increase with rewards which contradicts the usual magnitude effect finding

time consistency stationarity and time invariance a sequence of experiments documents static and dynamic preference reversals between sooner smaller and later larger rewards when the sooner reward could be immediate the theoretically motivated design permits separate identification of time consistent stationary a ndtime invariant choices at least half of the subjects are time consistent but only three quarters of them exhibit stationary choices about half of subjects with time inconsistent choices have stationary preferences these results chal lenge the view that present bias preferences are the main source of time inconsistent choices the past twenty years have seen a surge of interest in time inconsistent preferences mostly this has been motivated by psychological experiments and introspection that have suggested the existence of present bias a decision maker prefers smaller immediate reward to a larger delayed reward but when she is asked about her preferences between these two alternatives when both are equally shifted into the future her preferences are reversed although there is no inconsistency per se in her answers this behavior has been taken to suggest that when the decision maker will be asked to update her choices in the future she will generally deviate from her ex ante plans our goal in the present study is to perform a dynamic preference reversal experiment as such one is required to extend the standard framework of pref erences over temporal payments to a dated collection of such preferences this extension allows us to formally define three distinct properties stationarity im plies that ranking of temporal payments depends only on the time distance and payment distance between the alternatives time invariance assumes that the decision maker evaluates each temporal payment relative to the evaluation pe

risk preferences are not time preferences risk and time are intertwined the present is known while the future is inherently risky this is problematic when studying time prefer ences since uncontrolled risk can generate apparently present biased behavior we systematically manipulate risk in an intertemporal choice experiment discounted expected utility performs well with risk but when certainty is added common ratio predictions fail sharply the data cannot be explained by prospect theory hyperbolic discounting or preferences for resolution of uncertainty but seem consistent with a direct preference for certainty the data suggest strongly a difference between risk and time preferences jel c91 d81 d91 understanding individual decision making under risk and over time are two foundations of economic analysis 1 in both areas there has been research to suggest that standard models of expected utility eu and exponential discounting are flawed or incomplete regarding time experimental research has uncovered evidence of a present bias or hyperbolic discounting frederick loewenstein and o donoghue 2002 regarding risk there are number of well documented departures from eu such as the allais 1953 common consequence and common ratio paradoxes an organizing principle behind expected utility violations is that they seem to arise as so called boundary effects where certainty and uncertainty are combined camerer 1992 harless and camerer 1994 and starmer 2000 indicate that violations of expected utility are notably less prevalent when all choices are uncertain this observation is especially interesting when considering decisions about risk taking over time in particular certainty and uncertainty are combined in intertemporal decisions the present is known and certain while the future is inherently risky this observation is problematic if one intends to study time preference in isolation from

the less you discount the more it shows you really care interpersonal discounting in households abstract household members make monetary tradeoffs across time classical economics treats these decisions as if one rational individual makes them this assumption masks important other regarding concerns between spouses we designed an artefactual field experiment and collected data from 94 pairs of cohabiting couples to capture the complex nature of intra household time preferences estimation results show that 1 the interpersonal discount rate the rate used to tradeoff intertemporal payoffs between one s own payoff and the spouse s payoff is significantly different from the individual discount rate and 2 the interpersonal discount rate may provide an alternative way for people to express their other regarding preferences towards their spouses

the personal discount rate evidence from military downsizing programs the military drawdown program of the early 1990s provides an opportunity to obtain estimates of personal discount rates based on large numbers of people making real choices involving large sums the program offered over 65 000 separatees the choice between an annuity and a lump sum payment despite break even discount rates exceeding 17 percent most of the separatees selected the lump sum saving taxpayers 1 7 billion in separation costs estimates of discount rates range from 0 to over 30 percent and vary with education age race sex number of dependents ability test score and the size of payment

risk preferences are not time preferences reply can the well known experimental phenomenon of present bias in intertemporal choice be confounded with the risks associated with receiving payment can measurements of risk preferences be used to represent desires for smoothness in intertemporal payments in our two 2012 papers in this journal we explored these two questions and found the answer to the first to be yes and the second to be no we feel the three papers inspired by our work and published here underscore these arguments and point to interesting new possibilities for modeling and measuring risk over time jel c91 d81 d91

marriage divorce and interstate risk sharing in this paper we study the importance of marriage for interstate risk sharing in the us we find that us federal states in which married couples account for a higher share of the population are less exposed to state specific output shocks thus in addition to improving the allocation of risk at the individual level marriage also has implications for risk sharing at the more aggregated state level quantitatively the impact of marriage on interstate risk sharing varies over divorce regimes

happiness and time preference the effect of positive affect in a random assignment experiment abstract we conduct a random assignment experiment to investigate whether positive affect impacts time preference where time preference denotes a preference for present over future utility our result indicates that compared to neutral affect mild positive affect significantly reduces time preference over money this result is robust to various specification checks and alternative interpretations of the result are considered our result has implications for the effect of happiness on time preference and the role of emotions in economic decision making in general finally we reconfirm the ubiquity of time preference and start to explore its determinants djel d12 d83 i31

patience self control and the demand for commitment evidence from a large scale field experiment patience and self control are important non cognitive skills that are associated with favorable educational economic and social outcomes this paper provides empirical evidence to inform discussions on possible educational interventions to make children more forward looking or less present biased by putting forward a way to identify self control problems in children and exploring the role of commitment devices in mitigating such problems we report results from an experiment that measures planned allocations the demand for a commitment device and actual choices in the context of chocolate consumption over two days the experiment is conducted as part of a large field study on children s preferences which allows us to correlate behavior with variables related to the subjects socio economic background and educational environment as well as preference parameters elicited through other tasks and surveys we find a large demand for commitment among children in addition we identify important correlations between patience commitment demand and time inconsistency as well as student specific personality traits and outcomes such as school success