1. Measuring Time Preference and the Elasticity of Intertemporal Substitution Miles S. Kimball, Claudia R. Sahm and Matthew D. Shapiro September 6, 2006 Internet Project Meeting

2. Behavioral Model c is consumption, r is the real interest rate, s is the elasticity of intertemporal substitution, and ρ is the subjective discount rate

3. Research Design s, ρ : Preference parameters r : Treatment c : Behavioral response Vary treatment and use responses to infer parameters. Research Strategy

4. Implementation Vary Interest Rate –Vary cost of current consumption – Vary length of time periods Measure Consumption Choice – Choose among small set of paths – Actively form a desired path Infer Preferences – Summary statistics of responses – Statistical model with response error

5. Previous Survey Measures HRS 1992 Module K, N = 198 –Analyzed by Barsky, Kimball, Juster, and Shapiro (QJE 1997) HRS 1999 Mailout, N = 1,210 – Similar content to part of Internet Survey Questions explicitly vary the cost of current consumption and offer a discrete choice over a small set of consumption paths

6. MS Internet Survey Wave 2 (Fall 2004) Version 1, N = 350 –Vary cost of consumption –Choose from set of pairs Version 2, N = 155 –Vary cost of consumption –Move bars to create pair Version 3, N = 183 –Vary length of period –Move bars to create pair Use graphics on internet to test other measures:

7. Series Introduction - Version 1 - Series includes four questions with varying interest rates

8. Introduction – 0% Interest Rate Sequence r = {0%, 4.6%, 9.2%, 13.8%} is random Introduction repeated for each interest rate

9. Patterns – 0% Interest Rate Asked to choose two patterns Above screen (1 of 6) is identical to HRS Mail Out

10. Expansion Screen Follow-up if first choice on boundary (A or E) New feature on Internet

11. Randomize Pair C Choice of ($3000, $3000) moves from B to C to D 3 values to the parameter New feature on internet Top screen on mail out

12. Randomize Left-to-Right Screens mirror image New feature on internet Top screen on mail out

13. Randomize Shifts with Interest Rate Example with r = 9.2% Choice of ($2750, $3900) moves from E to C to A 3 values to the parameter New feature on internet Middle screen on mail out

14. Summary of Innovations in Internet Question Series 18 different screen groups 6 different sequences of interest rates 11 discrete choices per question Encourage active choices Increase informative responses Isolate framing effects Purpose of Innovations

15. Response Statistics Internet lower completion rate Internet fewer second choices Internet fewer non-informative responses

16. Consumption Growth at 0% Interest Rate Constant consumption is modal choice

17. Change in Consumption Growth as Interest Rate to 13.8% from 0% Interest rates change consumption more on internet

18. Change in Consumption Growth as Interest Rate Increases - Internet Decrease in growth is a sign of survey response error

19. Estimates of Parameters Responses reveal low time preference and IES Median and modal values in both surveys equal 0

20. More Graphical Questions - Version 2 - Move bars to select a consumption path

21. More Graphical Questions - Version 3 - Vary length of current and future periods

22. Implementation Issues Graphics require more programming –More programming → more bugs –Coordinate programmer and analyst Internet captures more data: number of clicks and interim responses Internet expands preference measures, but

23. Extensions / Renewal Refine and analyze data on IES, time preference, and risk tolerance –Improve instrument and output delivery –Estimate statistical model Measure complementary parameters –Diminishing marginal utility –Labor supply elasticities –Retirement elasticity