High-income consumers may be less hyperbolic when discounting the future

Da Silva, Sergio and De Faveri, Dinorá and Correa, Ana and Matsushita, Raul (2017): High-income consumers may be less hyperbolic when discounting the future.

Abstract

We investigate to what extent high-income consumers are less hyperbolic than low-income consumers using a sample of 216 bank customers and 796 undergraduates. We assess whether participants who scored lower on a test of cognitive ability were also those who tended to discount the future hyperbolically. Our problem is then to find whether lower cognitive ability translates into hyperbolic discounting. The students had higher implicit discount rates, i.e. they were more hyperbolic, for both low stakes and high stakes when long delays were involved, a result in line with the literature. The undergraduates tended to be hyperbolic regardless of stake size, whereas the bank customers tended to be hyperbolic only when high stakes were involved. This makes sense, as high-income consumers should be less sensitive to low stakes. The bank clients showed superior cognitive ability and this may explain why their System 2 could be more capable of overriding cognitive biases, such as the present bias.

• Item Type: MPRA Paper
• Language: English
• Keywords: hyperbolic discounting, cognitive ability, high-income consumers, behavioral economics
• Subjects: D - Microeconomics > D0 - General > D03 - Behavioral Microeconomics: Underlying Principles

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