Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/20728 
Year of Publication: 
2004
Series/Report no.: 
IZA Discussion Papers No. 1430
Publisher: 
Institute for the Study of Labor (IZA), Bonn
Abstract: 
This paper finds declining consumption expenditure between paydays, for a typical household in the working population of the UK. The magnitude is inconsistent with exponential time preference, but compatible with quasi-hyperbolic discounting. However, the hyperbolic model predicts that credit constraints drive the decline, and we find only mixed evidence in this regard. We also observe a method-of-payment result that suggests a role for mental accounting: households choose declining cash spending but flat credit-card spending over the pay period. We propose an alternative explanation for the results, based on cognitive costs of budgeting and perceptual biases, rather than self-control problems.
Subjects: 
consumption
hyperbolic-discounting
payday
mental accounting
reference-dependent preferences
credit cards
JEL: 
D12
D11
J33
B49
Document Type: 
Working Paper

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