Paid and hypothetical time preferences are the same: Lab, field and online evidence

TL;DR

This study compares real and hypothetical monetary incentives in time preference experiments across lab, field, and online settings, finding that hypothetical rewards yield similar results to real ones, but probabilistic payments do not.

Contribution

It provides empirical evidence that hypothetical incentives can reliably substitute real incentives in time preference experiments, reducing costs and logistical challenges.

Findings

Hypothetical and real incentives produce similar time preference estimates.

Probabilistic payments do not yield comparable results to certain rewards.

Results are consistent across lab, field, and online environments.

Abstract

The use of hypothetical instead of real decision-making incentives remains under debate after decades of economic experiments. Standard incentivized experiments involve substantial monetary costs due to participants' earnings and often logistic costs as well. In time preferences experiments, which involve future payments, real payments are particularly problematic. Since immediate rewards frequently have lower transaction costs than delayed rewards in experimental tasks, among other issues, (quasi)hyperbolic functional forms cannot be accurately estimated. What if hypothetical payments provide accurate data which, moreover, avoid transaction cost problems? In this paper, we test whether the use of hypothetical - versus real - payments affects the elicitation of short-term and long-term discounting in a standard multiple price list task. One-out-of-ten participants probabilistic payment schemes are also considered. We analyze data from three studies: a lab experiment in Spain, a well-powered field experiment in Nigeria, and an online extension focused on probabilistic payments. Our results indicate that paid and hypothetical time preferences are mostly the same and, therefore, that hypothetical rewards are a good alternative to real rewards. However, our data suggest that probabilistic payments are not.