Time Consistency: Stationarity and Time Invariance

Abstract

A sequence of experiments documents static and dynamic "preference reversals" between sooner-smaller and later-larger rewards, when the sooner reward could be immediate. The theoretically motivated design permits separate identification of time consistent, stationary, and time invariant choices. At least half of the subjects are time consistent, but only three-quarters of them exhibit stationary choices. About half of subjects with time inconsistent choices have stationary preferences. These results challenge the view that present-bias preferences are the main source of time inconsistent choices. provided excellent research assistance. I thank Bob Gateman for allowing me to conduct the experiment during the tutorial classes of the courses he taught. The ECON 490 students (experimental economics sections

Subjective Expectations of Medical Expenditures and Insurance in Rural Ethiopia

“…29 This is consistent with perceived high volatility of medical expenses motivating plans to insure, even if those plans are not ultimately implemented. Failure to fulfill plans may be due to time-inconsistency, although it is not necessarily indicative of this (Giné et al 2014, Halevy 2015. 30 All in all, despite the fact that expectations do appear to be formed on the basis of relevant information, including past medical expenses, and are to a limited extent predictive of future expenses, there is no strong evidence that these expectations are used in the decision to take out health insurance.…”

Non-Stationary Additive Utility and Time Consistency

“…It shows that this class is broader than is generally assumed, comprising many simple cases that have never been used, and may be useful to settle some important economic problems such as, for example, the effect of aging on the intertemporal choice of consumption and savings. Thus, it hopes to clarify the notion of time consistency and, in particular, to give a better understanding of the distinction between stationarity and time consistency, which has recently been pointed out by Halevy (2015), and there concrete implications for applied economic modeling.…”

The Impact of Biases in Survival Beliefs on Savings Behavior

“…This aspect is therefore an important dimension along which the two models are not observationally equivalent. Also, Halevy (2015) presents experimental data according to which time-variant preferences are empirically more relevant than timeinvariant preferences as presumed by the QHD model. Since the RDU preferences of our life-cycle model are time-variant if, and only if, they do not reduce to QHD (or RE) preferences, we regard Halevy's (2015) finding as independent empirical evidence in favour of a general RDU life-cycle model that cannot be reduced to a QHD model.…”

“…Also, Halevy (2015) presents experimental data according to which time-variant preferences are empirically more relevant than timeinvariant preferences as presumed by the QHD model. Since the RDU preferences of our life-cycle model are time-variant if, and only if, they do not reduce to QHD (or RE) preferences, we regard Halevy's (2015) finding as independent empirical evidence in favour of a general RDU life-cycle model that cannot be reduced to a QHD model. With respect to the implications of biased survival beliefs for savings behavior in our general RDU model, our closed form solutions establish two main results.…”

“…That is, our RDU-life cycle model becomes time-invariant if, and only if, it reduces to either the RE-or the QHD model. Halevy (2015) reports experimental data according to which time-variance is more common among decision makers with non-stationary and time-inconsistent preferences than time-invariance. We interpret Halevy's finding as empirical evidence in favour of a general time-variant RDU life-cycle model over the nested special case of a time-invariant QHD life-cycle model.…”