Abstract
We report results of an experiment testing for present-value maximization in intertemporal income choice. Two-thirds of subjects did not maximize present value. Through a series of experimental manipulations that impose costs on non-present value maximizers, we are able to reduce the level of violations substantially. We find, however, that a sizeable proportion of subjects continue to systematically violate present-value principles. Our interpretation is that these subjects either cannot or choose not to distinguish between t income and t expenditure in making their choices. Self-management, bounded rationality, and sequence preference are suggested as possible explanations for such behavior.
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GIGLIOTTI, G., SOPHER, B. Violations of Present-Value Maximization in Income Choice. Theory and Decision 43, 45–69 (1997). https://doi.org/10.1023/A:1004950613488
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DOI: https://doi.org/10.1023/A:1004950613488