Travail et économie publique externe

Du 07/05/2020 de 11:00 à 12:00

Using ZOOM

KIRCHER Philipp (EUI)

Eliciting time preferences under changing background consumption - the case of job search

We propose a new method of eliciting individual time preference measures in settings where background consumption might vary substantially. The method relies on allocating lottery tickets with low winning probabilities but high rewards. In standard intertemporal choice models, but even in many non-standard ones, the high reward decouples the allocation of lottery tickets from the current and expected future background consumption levels (i.e., from changes in wealth and other income over time). Standard time preference measures elicit the marginal value of money across different periods of time. If consumption remains constant, in standard models this identifies the discount factor. If consumption is volatile, it measures the discount factor and changes in the marginal consumption utility. Consider a hand-to-mouth job seeker who receives unemployment benefits currently but expects to obtain well-paying job next period. Compare him to a similar individual with the only difference that he does not expect to find a job next period. Even with identical discount factor the former has less need of additional money in the second period because he expects to earn well, so will appear more eager to take current payments than future ones compared to the second. Without further controls he appears to have a lower discount factor. Our high-stakes lottery method intends to isolate the pure discount factor effect by offering rewards far outside the current range of consumption. We show within standard theories that this indeed uncovers the true discount factor independently from expectations about the consumption stream. We also show how this extends to environments with non-standard preferences, and with savings, and show that our measure still ordered individuals correctly. We validate our method on experimentally on two student samples drawn from the same pool. They are subjected to a standard time preference elicitation method, and to our method. One set of students is asked about discount factors in December at a time when their current budget is reduced by extraordinary expenditures for Christmas and Saint Nicholas gifts. The other one is asked in February when no such extra constraints exist. Our hypothesis is that both groups share the same true discount factor, but the former have less consumption now then in the future and therefore value current money higher. We expect this not to a?ect our measure, but the standard one. We also expect both measures to correlate well for the second group without income shocks, but not for the first. Finally, we apply our method to elicit discount factors from unemployed job seekers which naturally have varying income streams. We show a low degree of present bias, and are in the process of studying e?ects on job findings, reservation wages and effort over time.