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SUMMARY:Strictly Convex Time Budgets (joint with Holger Gerhardt) - Rafael
Suchy (University of Oxford)
DTSTART;VALUE=DATE-TIME:20210226T124500Z
DTEND;VALUE=DATE-TIME:20210226T134500Z
UID:https://talks.ox.ac.uk/talks/id/c0a48c72-78d3-44c3-95fe-2c7a50b8f5b0/
DESCRIPTION:Andreoni and Sprenger (2012) proposed the “Convex Time Budge
ts (CTB)" method to estimate preference parameters that govern individuals
’ intertemporal decision making. Their method implements intertemporal b
udget constraints that involve payments at two different points in time. I
ndividuals are asked to allocate a monetary budget to the two dated paymen
ts\, with a (nonnegative) constant interest rate being paid for every mone
tary unit allocated to the later payment. The main promise of this methodo
logy is a precise identification of the preference parameters that describ
e individuals’ choices. This\, however\, holds only as long as individua
ls choose interior solutions. It has turned out that about two-thirds of a
ll choices that subjects make in lab experiments are corner solutions. Sin
ce a large share of corner solutions deprives the CTB of its main advantag
e\, we propose a method to substantially decrease the frequency at which s
ubjects choose corner solutions. The main idea is that the interest rate i
s initially very high and strictly decreases in the amount that subjects a
llocate to the later payment. Thus\, the convex time budgets become strict
ly convex. The extremely high initial interest rate should discourage indi
viduals from allocating the entire budget to the earlier payment\, while t
he marginal interest rate approaching zero (or even becoming negative) if
the entire budget is saved should discourage subjects from allocating the
entire budget to the later payment. We conduct a series of experiments and
indeed find that strictly convex budgets dramatically decrease the number
of corner solutions compared to linear budgets.\nSpeakers:\nRafael Suchy
(University of Oxford)
LOCATION:Held on Zoom
URL:https://talks.ox.ac.uk/talks/id/c0a48c72-78d3-44c3-95fe-2c7a50b8f5b0/
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DESCRIPTION:Talk:Strictly Convex Time Budgets (joint with Holger Gerhardt)
- Rafael Suchy (University of Oxford)
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