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  5. Eliciting Time Preferences When Income and Consumption Vary: Theory, Validation & Application to Job Search

American Economic Journal:
Microeconomics

ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)

Eliciting Time Preferences When Income and Consumption Vary: Theory, Validation & Application to Job Search

  • Michèle Belot
  • Philipp Kircher
  • Paul Muller
American Economic Journal: Microeconomics (Forthcoming)

Abstract

We propose a simple method for eliciting individual time preferences without estimating utility functions even in settings where background consumption changes over time. It relies on eliciting preferences for receiving high stakes lottery tickets at different points in time. In a standard intertemporal choice model high rewards decouple lottery choices from variation in background consumption. We investigate robustness to other assumptions theoretically, and validate our elicitation method experimentally. We illustrate an application of our method with unemployed job seekers which naturally have income/consumption variation.

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