A guaranteed immediate payout reduces impatience of financially constrained individuals

K. Van der Heijden*, A. Festjens, C. Goukens, T. Meyvis

*Corresponding author for this work

Research output: Contribution to journalArticleAcademicpeer-review

Abstract

A large stream of literature found that individuals who experience financial strain are particularly concerned about their present needs-that is, they are more likely to choose smaller immediate payoffs over larger future payoffs. In contrast, some recent findings suggest that financially constrained individuals may be more concerned about future needs instead (e.g., they are relatively more likely to invest in long-lived durables than in short-lived experiences). We propose that the use of traditional intertemporal choice tasks has made prior studies overly sensitive to the myopiainducing effects of financial constraint. These tasks typically offer a choice between receiving a smaller payoff in the present versus a larger payoff in the future. Across three studies, we observe that, as long as some immediate payout is guaranteed, financially constrained individuals are as likely as nonconstrained individuals to accept a delay for a larger payoff. These findings qualify prior demonstrations of the myopic effects of financial constraint and suggest that the traditionally used choice paradigm might not accurately capture time preferences, particularly for financially constrained individuals. Furthermore, they provide possible interventions for those interested in reducing the myopia of financially constrained individuals who are facing all now versus all later decisions.
Original languageEnglish
Article numbere2108832119
Number of pages6
JournalProceedings of the National Academy of Sciences of the United States of America
Volume119
Issue number3
DOIs
Publication statusPublished - 18 Jan 2022

Keywords

  • scarcity
  • financial constraint
  • intertemporal choice
  • choice patience
  • TIME-PREFERENCES
  • DECISIONS
  • POVERTY
  • SUBJECT
  • REWARDS
  • REAL

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