Time preferences and their life outcome correlates: Evidence from a representative survey

PLOS ONE RESEARCH ARTICLE Time preferences and their life outcome correlates: Evidence from a representative survey Dániel Horn1,2☯, Hubert János Kiss ID1,2☯* 1 Center for Economic and Regional Studies, Institute of Economics (KRTK KTI), Budapest, Hungary, 2 Corvinus University of Budapest, Budapest, Hungary a1111111111 a1111111111 a1111111111 a1111111111 a1111111111 OPEN ACCESS Citation: Horn D, Kiss HJ (2020) Time preferences and their life outcome correlates: Evidence from a representative survey. PLoS ONE 15(7): e0236486. https://doi.org/10.1371/journal.pone.0236486 Editor: Philipp D. Koellinger, Vrije Universiteit Amsterdam, NETHERLANDS Received: November 13, 2019 ☯ These authors contributed equally to this work. * Abstract We collect data on time preferences of a representative sample of the Hungarian adult population in a non-incentivized way and investigate how patience and present bias associate with important life outcomes in five domains: i) educational attainment, ii) unemployment, iii) income and wealth, iv) financial decisions and difficulties, and v) health. Based on the literature, we formulate the broad hypotheses that patience relates positively, while present bias associates negatively with positive outcomes in the domains under study. With the exception of unemployment, we document a consistent and often significant positive relationship between patience and the corresponding domain, with the strongest associations in educational attainment, wealth and financial decisions. We find that present bias associates significantly with saving decisions and financial difficulties. Accepted: July 7, 2020 Published: July 30, 2020 Peer Review History: PLOS recognizes the benefits of transparency in the peer review process; therefore, we enable the publication of all of the content of peer review and author responses alongside final, published articles. The editorial history of this article is available here: https://doi.org/10.1371/journal.pone.0236486 Copyright: © 2020 Horn, Kiss. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited. Data Availability Statement: All relevant data are within the manuscript and its Supporting Information files. Funding: This study was funded by the following: DH - K 124396, National Research, Development & Innovation (NKFIH) HJK - K 119683, the National Introduction Economic analysis is based on the tenet that individuals maximize utility functions that are representations of preferences, given some constraints. One of the most basic preferences that appear in almost all introductory books on Economics are time preferences. There are two relevant aspects of time preferences that we study in this paper. On the one hand, patience reveals how an individual values the future relative to the present, hence it plays an essential role in intertemporal decision-making. Importantly, patient individuals have low discount rates, so they appreciate future benefits more than their more impatient peers. Thus, as the cost of effort generally materializes in the present, more patient individuals are expected to invest more today in things that bear fruit tomorrow. As a consequence, more patient individuals may tend • to invest more in their human capital by studying more; • to choose long-term financial investments (e.g. retirement savings); • to lead a healthier life. PLOS ONE | https://doi.org/10.1371/journal.pone.0236486 July 30, 2020 1 / 26 PLOS ONE Research, Development & Innovation (NKFIH) HJK - 109354, Hungarian Scientific Research Fund (OTKA) HJK - ECO2017-82449-P, Spanish Ministry of Economy, Industry and Competitiveness HJK Higher Education Institutional Excellence Program of the Ministry for Innovation and Technology in the framework of the „Financial and Public Services” research project (reference number: NKFIH-1163-10/2019) at Corvinus University of Budapest The funders had no role in study design, data collection and analysis, decision to publish, or preparation of the manuscript. Competing interests: The authors have declared that no competing interests exist. Time preferences and their life outcome correlates Note that these accumulation decisions affect the physical / human capital and factor productivity in the society that in turn are direct factors determining the income of the country. There is an important literature [1–4] that studies how different determinants, such as patience, affect macroeconomic growth. The other aspect of time preference is time consistency. Time-consistent individuals have a constant discount rate between any two equidistant points in time. However, a large share of individuals are not time-consistent, but have a higher immediate discount rate relative to their long-run discount rate. In other words, many individuals are more impatient in the short run than in the long run. These present-biased individuals place excessive weight on immediate costs compared to benefits in the future. This tendency may lead to procrastination, because even if we want to achieve a goal (e.g. save more money or lose weight), given that we perceive the immediate costs to be too high, we may want to delay incurring those costs. Therefore, more present-biased individuals may have a tendency, for instance, to underinvest in educational attainment or to have financial problems. There is an active empirical literature that attempts to measure individual time preferences and link those preferences to individual decisions. This paper contributes to this literature. We elicited time preferences in a survey in Hungary. Our data have at least three desirable features. First, the survey is representative of the adult population of a whole country, which is still not very common of papers studying individual preferences, notable exceptions being [5, 6]. Second, it provides a very rich set of controls (including risk attitudes), which allows us to see if our preference measures have predictive power once we control for a wide range of variables. In fact, one of the contributions of the paper is to see how the association between our preference measures and the life outcomes changes as we add more and more controls. Third, similar studies have been carried out, but mostly in the US and Western countries. Less is known about other, in our case Central-Eastern European, countries. We link our time preference measures to life outcomes in five domains: i) educational attainment, ii) unemployment, iii) income and wealth, iv) financial decisions and difficulties, and v) health. In general, we hypothesize that more patient individuals fare better in these domains (e.g. have better educational attainment or higher income), while present bias may lead to worse outcomes in these domains, ceteris paribus. We find that with the exception of unemplo (...truncated)