The Correlation between Time Preference and Incomes Is Spurious: They Are Bridged by Fluid Intelligence

Harashima, Taiji (2019): The Correlation between Time Preference and Incomes Is Spurious: They Are Bridged by Fluid Intelligence.

Abstract

The rate of time preference (RTP) has been observed to be negatively correlated with incomes, but the mechanism behind this correlation is not yet sufficiently understood. Here, I examine it on the basis of fluid intelligence in an economy in which households behave according to the maximum degree of comfortability. I show that heterogeneity in fluid intelligences among households causes heterogeneous RTPs and incomes at the same time. This means that the negative correlation between RTP and incomes is spurious, and there is no direct causality between them. They only appear to be correlated because they are bridged by fluid intelligences.

• Item Type: MPRA Paper
• Language: English
• Keywords: The rate of time preference; Maximum degree of comfortability; Fluid intelligence
• Subjects: D - Microeconomics > D1 - Household Behavior and Family Economics > D11 - Consumer Economics: Theory; D - Microeconomics > D1 - Household Behavior and Family Economics > D14 - Household Saving; Personal Finance; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E21 - Consumption ; Saving ; Wealth; E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy > E22 - Investment ; Capital ; Intangible Capital ; Capacity

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