Sunday, September 14, 2008

Discount Rates in the Field and the Lab

Another NBER working paper below examines discount rates in lab tasks and correlates them with "field" measures of discount rates. They find that the lab-elicited discount rate correlates less than 0.28 with all field measures of discounting such as different types of financial behaviour etc., though they argue that elicited discount rates are more predictive than demographic variables in predicting behaviour. Worth comparing this to the study we did this year which examined how well discount rates were predicted by common personality and psychometric inventories. We find evidence of correlations with heart rate variability, systolic blood pressure, self-control, extraversion, consideration of future consequences and experiential avoidance. As in the Chabris et al paper, all correlations are below 0.29.

Chabris, Laibson, Morris, Schuldt, Taubinsky

---- Abstract -----

We estimate discount rates of 555 subjects using a laboratory task and find that these individual discount rates predict inter-individual variation in field behaviors (e.g., exercise, BMI, smoking). The correlation between the discount rate and each field behavior is small: none exceeds 0.28 and many are near 0. However, the discount rate has at least as much predictive power as any variable in our dataset (e.g., sex, age, education). The correlation between the discount rate and field behavior rises when field behaviors are aggregated: these correlations range from 0.09-0.38. We present a model that explains why specific intertemporal choice behaviors are only weakly correlated with discount rates, even though discount rates robustly predict aggregates of intertemporal decisions.

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