We study the identification of intertemporal preferences in a stationary dynamic discrete decision model. We propose a new approach which focuses on problems which are intrinsically dynamic: either there is endogenous variation in the choice set, or preferences depend directly on the history. History dependence links the choices of the decision-maker across periods in a more fundamental sense standard dynamic discrete choice models typically assume. We consider both exponential discounting as well as the quasi-hyperbolic discounting models of time preferences. We show that if the utility function or the choice set depends on the current states as well as the past choices and/or states, then time preferences are non-parametrically point-identified separately from the utility function under mild conditions on the data. With additional variation in the data, we may also recover the instantaneous utility function without imposing any normalization on the utility across states.
Working paper

We estimate a dynamic discrete-continuous model of mortgage demand, in which forward-looking borrowers choose the type (i.e. interest rate type, length, etc.) and quantity of mortgages. Borrowers are assumed to have time- separable utility, with quasi-hyperbolic discounting. Time preference plays an important role in understanding inter-temporal economic behaviour. Typically, time preferences are not estimated in dynamic discrete choice models except under special exclusion restrictions (Magnac Thesmar, 2002), we instead provide identification through the addition of the continuous choice over quantity borrowed. An existing literature on quasi-hyperbolic discounting focuses on continuous choices (e.g. savings), to which we are able to add the demand for commitment embedded in the discrete choice over mortgage products. Our reduced-form results confirm the effect of commitment on borrowing decisions, as well as the effect of dynamic inconsistency on demand for commitment. We then use the structural model to quantify the potential welfare implications of modifying the set of products so to improve consumers' commitment
Working paper coming soon

We undertook a randomized field experiment to quantify three behavioral biases that may affect consumers of addictive goods: present-biased preferences, naïve beliefs regarding present bias, and projection-biased beliefs over future abstinence. These biases compose a minimal set of departures from the neoclassical benchmark which can accommodate both intertemporal and state-dependent mis-predictions, and have important theoretical and policy ramifications. Our experimental design employs a new lottery-based monitoring design to ensure strict incentive-compatibility at all stages, and a novel identification of subjects' biases based on demand for partial commitment devices. We find that cigarette smokers overestimated their likelihood of future abstinence by more than 100%, consistent with partially-naïve present-biased preferences. In a structural analysis, we estimate present bias and beliefs about present bias to be an average beta = 0.62 and beta-tilde = 0.71, respectively, with substantial heterogeneity and a strongly positive correlation between the two at the individual level. Smokers further mispredict the effects of an abstinence intervention on their future abstinence. Inconsistent with a simple model of projection bias, our estimates imply that ex-ante smokers anticipate no effect (i.e., complete projection over long-run addiction) and ex-post believe the effect to be marginally negative. Our estimates highlight that smokers suffer from a pernicious constellation of biases: under their own long-run preferences, smokers' choices lead to a welfare loss of between $600 and $1200 per week.
NBER working paper

We study a model of social learning with misspecified higher-order beliefs. The environment is such that with rational beliefs, players’ actions would converge to the public information optimal action. A small misperception at an arbitrarily high level of the belief hierarchy may lead to predetermined learning: agents become arbitrarily convinced that a given state obtains, independently of the true state of the world.
Working paper coming soon

We conducted a randomized controlled trial to understand how a web-based retirement saving calculator affects workers’ retirement-savings decisions. In both conditions, the calculator projected workers’ retirement income goal. In the treatment condition, it additionally projected retirement income based on defined-contribution savings, prominently displayed the gap between projected goal and actual retirement income, and allowed users to interactively explore how alternative, future contribution choices would affect the gap. The treatment increased average annual retirement contributions by $174 (2.3%). However, effects were larger for those with greater financial knowledge, suggesting this type of tool complements, rather than substitutes for, underlying financial capability.
Working paper
Press coverage

Published