CeDEx Seminar - Charles Sprenger (Caltech)

Intertemporal Salience: Theoretical Foundations and Experimental Evidence

Abstract: Economic decisions which implicate both risk and time are frequent. While experimental evidence demonstrates robust deviations from the canonical model, Discounted Expected Utility (DEU), debate persists on what non-DEU models are appropriate for rationalizing choice. This manuscript proposes an extension of atemporal salience theory (Bordalo et al., 2012, 2013b) for the treatment of intertemporal lotteries. The elaborated model rationalizes prominent DEU deviations and delivers additional testable predictions. The model’s predictions are explored in three existing data sets, and a novel experiment, which distinguishes intertemporal salience from competing theories. Roughly 75% of prior experimental deviations from DEU are consistent with intertemporal salience, demonstrating the value of the theory.