Reference Dependence in Intertemporal Preference

Abstract

Dynamic structures in intertemporal choices offer multiple channels through which reference dependence can occur. We examine intertemporal reference dependence when using choice lists to elicit time preference over outcome sequences. Reference point effects can arise endogenously within an outcome sequence and exogenously from the experimental environment of the choice list. We show that estimated discount factors in the choice list are biased by both kinds of reference points and propose a model to jointly account for both. Our experimental design with outcome sequences also enables us to jointly estimate the discount factor and utility curvature. We further discuss the implications for recent developments in the measurement of intertemporal preference. This paper was accepted by Manel Baucells, behavioral economics and decision analysis. Funding: S. Zhong was supported by the National University of Singapore [Singapore Ministry of Education Academic Research Fund Tier 1 Grant R-122-000-325-115]. Supplemental Material: The data files and online appendices are available at https://doi.org/10.1287/mnsc.2022.4348 .