Time is Knowledge: What Response Times Reveal

TL;DR

This paper explores how response times can reveal hidden variables such as preferences, happiness, and willingness to pay, offering a unified theoretical framework and diverse empirical applications.

Contribution

It provides a general theoretical characterization of latent variables detectable through response times, unifying and extending previous results with new applications.

Findings

Response times can reveal unobserved variables like preferences and happiness.

The framework enables empirical analysis such as preference revelation and treatment heterogeneity.

New applications include identifying optimal nudges and testing income happiness diminishing.

Abstract

Response times contain information about economically relevant but unobserved variables like willingness to pay, preference intensity, quality, or happiness. We provide a general characterization of the properties of latent variables that can be detected using response time data. Our theoretical framework unifies and generalizes results in the literature and gives rise to many new applications. We illustrate the rich insights that the method can deliver through several empirical applications: revealed preference analysis, identifying an optimal nudge, testing decreasing marginal happiness of income, and predicting treatment heterogeneity.