Publication
Sun, Chen and Jan Potters (2022), Magnitude Effect in Intertemporal Allocation Tasks, Experimental Economics, 25(2), 593-623.
Abstract: We investigate how the intertemporal allocation of monetary rewards is influenced by the size of the total budget, with a particular interest in the channels of influence. We find a significant magnitude effect: the budget share allocated to the later date increases with the size of the budget. This effect does not depend on whether the sooner reward is paid in the present or in the future, implying that the factors which drive the present bias cannot account for the magnitude effect. At the aggregate level as well as at the individual level, we find magnitude effects both on the discount rate and on intertemporal substitutability (i.e. utility curvature). The latter effect is consistent with theories in which the degree of asset integration is increasing in the stake.
[Paper] [Online Appendices] [Supplementary Materials (registration required)]
Abstract: We investigate how the intertemporal allocation of monetary rewards is influenced by the size of the total budget, with a particular interest in the channels of influence. We find a significant magnitude effect: the budget share allocated to the later date increases with the size of the budget. This effect does not depend on whether the sooner reward is paid in the present or in the future, implying that the factors which drive the present bias cannot account for the magnitude effect. At the aggregate level as well as at the individual level, we find magnitude effects both on the discount rate and on intertemporal substitutability (i.e. utility curvature). The latter effect is consistent with theories in which the degree of asset integration is increasing in the stake.
[Paper] [Online Appendices] [Supplementary Materials (registration required)]
Working Papers
Non-Additivity of Subjective Expectations over Different Time Intervals. joint with Peter Haan, Uwe Sunde, and Georg Weizsäcker, revision requested by Management Science
Abstract: We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents’ degree of additivity is correlated with making larger financial investments.
[Paper] [Slides]
Measuring Preference Over Temporal Profiles, under review
Abstract: Growing evidence indicates that utility over time differs from utility under risk, highlighting the advantage of measuring intertemporal preferences exclusively from intertemporal choices. We propose a simple method for measuring intertemporal preferences. The method allows a wider range of models to be measured than preceding methods, and it requires no knowledge of discount functions or utility functions. It is easy to implement, clear to subjects, incentive compatible, and does not require more measurements than existing methods under identical assumptions. It is suitable both for theory testing which requires extensive applicability and robustness and for applied studies which demand simplicity. In an experiment, we illustrate how the method can be used to test recent non discounted utility models non parametrically.
[Paper] [Slides]
Does Making a Choice Affect Subsequent Belief Formation? An Experimental Study
Abstract: When uncertainty is present, choices are based on beliefs, but do choices in turn have an effect on subsequent belief formation? We perform an experiment to study choice-induced belief change in an individual decision-making context. After being presented with noisy signals about the values of two options, subjects are randomly assigned to one of the three treatments: making a choice between the two options, receiving a random option, or possessing no option. Then they are presented with more signals and are asked to estimate the values of the two options. We find no significant differences between the distributions of estimates in the three groups, irrespective of whether belief elicitation is incentivized or not, and irrespective of whether previous signals are perfectly accessible or not. This suggests that making a choice does not lead to an economically meaningful effect on subsequent belief formation in our setting.
[Paper] [Slides]
Abstract: We examine the additivity of stock-market expectations over different time intervals. When asked about a ten-year interval, survey respondents expect a stock-price change that is not equal to, but closer to zero than, the sum of their expectations over two shorter time intervals that cover the same ten years. Such sub-additivity is irrational in that it cannot stem from aggregating short-term expectations. Model estimates show that the pattern is consistent with a time perception where shorter time intervals have a proportionally larger weight. We also find that the respondents’ degree of additivity is correlated with making larger financial investments.
[Paper] [Slides]
Measuring Preference Over Temporal Profiles, under review
Abstract: Growing evidence indicates that utility over time differs from utility under risk, highlighting the advantage of measuring intertemporal preferences exclusively from intertemporal choices. We propose a simple method for measuring intertemporal preferences. The method allows a wider range of models to be measured than preceding methods, and it requires no knowledge of discount functions or utility functions. It is easy to implement, clear to subjects, incentive compatible, and does not require more measurements than existing methods under identical assumptions. It is suitable both for theory testing which requires extensive applicability and robustness and for applied studies which demand simplicity. In an experiment, we illustrate how the method can be used to test recent non discounted utility models non parametrically.
[Paper] [Slides]
Does Making a Choice Affect Subsequent Belief Formation? An Experimental Study
Abstract: When uncertainty is present, choices are based on beliefs, but do choices in turn have an effect on subsequent belief formation? We perform an experiment to study choice-induced belief change in an individual decision-making context. After being presented with noisy signals about the values of two options, subjects are randomly assigned to one of the three treatments: making a choice between the two options, receiving a random option, or possessing no option. Then they are presented with more signals and are asked to estimate the values of the two options. We find no significant differences between the distributions of estimates in the three groups, irrespective of whether belief elicitation is incentivized or not, and irrespective of whether previous signals are perfectly accessible or not. This suggests that making a choice does not lead to an economically meaningful effect on subsequent belief formation in our setting.
[Paper] [Slides]
Work in progress
Do Experimental Measures of Time and Risk Preferences Predict Financial Outcomes? joint with Gijs van de Kuilen, Jan Potters, Arno Riedl, and Paul Smeets
Average Change per Year versus Total Change: Predicting Investment Decisions using Long-run Expectations. joint with Peter Haan, Felix Weinhardt, and Georg Weizsäcker
Average Change per Year versus Total Change: Predicting Investment Decisions using Long-run Expectations. joint with Peter Haan, Felix Weinhardt, and Georg Weizsäcker
