Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/245802 
Year of Publication: 
2021
Publisher: 
ZBW - Leibniz Information Centre for Economics, Kiel, Hamburg
Abstract: 
We study the role of cognitive ability and financial literacy for inter-temporal decision-making using an adapted version of the Convex Time Budget Protocol. We document substantial heterogeneity in choice-patterns and estimated parameters at the individual-level: We find that subjects with higher cognitive ability and domain specific-knowledge are more likely to make patient inter-temporal choices, to allocate the entire budget to a single payment-date, and to allocate the entire budget to corner choices as interest rates increase. At the same time, domain specific knowledge is uncorrelated with choice consistency and estimated individual error parameters, suggesting these results are not driven by a reduction in random noise among high ability respondents. These results serve as suggestive evidence for inter-temporal arbitrage among high ability respondents, thereby revealing a potential confound in time-preference elicitation tasks relying on time-dated monetary rewards.
Subjects: 
Intertemporal choice
cognitive ability
financial literacy
narrow bracketing
arbitrage
JEL: 
G53
D15
D91
Document Type: 
Working Paper

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