EfD Discussion Paper,
Environment for Development, University of Gothenburg

Abstract: The implications of commonly used money earlier or later (MEL) games for intertemporal behavior depend critically upon subjects’ choice bracketing. If subjects bracket narrowly, responses reflect preferences independent of subjects’ financial environment. Alternatively, if subjects bracket broadly, responses reflect subjects’ marginal returns to investment. We test both hypotheses in a lab-in-the-field experiment, which involves repeated MEL games, a large unconditional cash transfer, and an illiquid savings product. Subjects do not narrowly bracket – randomized cash transfers induce greater patience in MEL choices. Subjects do not broadly bracket either – they fail to arbitrage across equivalent MEL and savings opportunities. We provide a conceptual framework and present evidence that narrowly bracketing subjects drive the predictive power of MEL outcomes for financial choices, justifying the common practice of interpreting MEL choices as a proxy for time preferences rather than financial environment.

Keywords: Time preferences; narrow bracketing; broad bracketing

JEL-codes: C93; D03; D11; D90

Language: English

55 pages, June 24, 2024

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