Patience and the Wealth of Nations Topics in Behavioral and Experimental Economics SS 2015 Presentation: Dominik Schaufler Paper by: Thomas Dohmen, Benjamin Enke, Armin Falk, David Huffman and Uwe Sunde 01/2015

Conceptual Framework Source: Figure 1, Patience and the Wealth of Nation, p. 4

Hypotheses H1: At the aggregate level, patience exhibits a positive reduced-form correlation with income levels and income growth H2: Patience is correlated with proximate determinants, in terms of both their levels and corresponding accumulation processes. In addition, none of the proximate determinants alone fully captures the explanatory content of patience with respect to national income.

Hypotheses H3: The positive reduced-form relationship between patience and income, and the association between patience and accumulation decisions, extends to disaggregate data at the regional and individual level.

Data collection Global Preference Survey, 2012, 76 countries 4 noteworthy features: – Preference measures obtained in a comparable way – Representative population samples – Reflects geographical representativeness – Experimental validated survey items

Measure of patience Quantitative:  Staircase measure – choice between hypothetical payment today or payment in 1 year – expressed in local currency Qualitative: self assessment on 11 point Scale  how willing are you to give something up (completely unwilling to do so – very willing to do so) Linear combination makes up patience measure Patience = Staircase measure + 0,288 Qualitative measure

World map of patience Source: Figure 2, Patience and the Wealth of Nation

Source: Table 1, Patience and the Wealth of Nation

Sub Samples and Additional measures Patience and Effect on Continents  odes the relationship exist within continents? – Patience explains around 40% of the variation within continents (Continents, OECD, Colonized) Alternative measures – GDP/worker, HDI, subjective statements of well being  relationship not restricted to GDP/capita as measure.

Measuring Preferences Unobserved factors? 3 potential problematic areas: – Financial environment in terms of inflation, interest rate, borrowing constraints – Context or culture specific interpretations – Systematic shortcuts due to cognitive limitations

Historical Income and growth rates If deep cultural roots there should be persistence over time – historical prediction should be possible – Account for population flows Higher steady state but also faster growth? – 1820, 1870, 1925, 1950, 1975, 2010 Unconditional correlation Control for log per capita and continent fixed effects

Role of proximate determinants Can any single proximate determinant fully account for the relationship between patience and national income? – Patience and physical Capital (about a third of the variation explained) – Patience and Human Capital (about 40% of variation explained)

Patience, factor productivity and institutions Total factor productivity, R&D expenditures as % of GDP, # Researchers in R&D, Global innovation index  Not only accumulation of factors but also relevant for accumulation of knowledge + productivity  Institutions: democratic quality, property rights, social infrastructure index, S&P long term credit rating  Patience is a strong correlate of democracy, property rights and social infrastructure

Condition on proximate determinants Relationship should weaken if conditioned on proximate determinants it does, but patience remains significant No proximate determinate alone fully accounts for explanatory content of patience

Patience within Countries (3rd Hypotheses) – Regional level (55 countries, 712 regions) H3 confirmed, regions are influenced by different levels of patience – Individual level Within countries more patient people tend to be richer and have a higher education. Relationship holds at the individual level

Conclusion No identification of causal effects Existence of third factors? Reverse causality? Framework with time preference as relevant driver empirically validated.

Thank you

Source: Table 1, Patience and the Wealth of Nation

Sub-Samples Source: Table 2, Patience and the Wealth of Nation, p. 4

Alternative measures Source: Table 3, Patience and the Wealth of Nation, p. 4

Historical income

Growth rates in the past 200 years

Patience and phsyical capital

Patience and human capital

Patience and productivity

Patience and institutions

Patience and proximate determinants

Regional patience

Individual patience