Construction of time preference: an investigation of the role of elicitation method in experimental elicitation of time preference

Abstract

The idea of preference reversal and construction of preference is not new to literature in decision making. Indeed, several theories have been developed to explain it. (Lichtenstein and Slovic, 2006). The present paper considers heuristics activated in different elicitation procedures applied in time preference research. I show that activation of these rules in correspondence with different elicitation methods leads to observation of a particular pattern most frequently reported in time preference literature: hyperbolic discounting. In particular, I analyze two most diffused elicitation procedures, matching task and two variations of choice task in multiple price list format (MPL). In a series of experiments I demonstrate that matching task is characterized by choice of focal amounts and anchoring to previously reported amount. At the same time, choice in MPL format largely depends on the structure of the list from which the choice is made. I study two widely used structures of MPL choice task format: (a) MPL with nominal structure (Green et al, 1997), where choice alternatives correspond to the same nominal amounts that are available at different time horizons; (b) MPL with interest rate structure (Coller and Williams, 1999), in which monetary alternatives at each time horizon in consideration are constructed as increases corresponding to a fixed interest rate. Although these two elicitation structures activate similar decision processes they lead to observation of qualitatively different results that are in large part defined by the underlying structure of the list of alternatives. I show that matching task and MPL with nominal structure lead to observation of hyperbolic evidence, that could be of different kinds depending on the structure of MPL table. At the same time, elicitation with MPL with interest rate structure leads to observation of rather stable time preference that can be well approximated by exponential discounting.

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