Paid and hypothetical time preferences are the same: Lab, field and online evidence

Abstract: The use of hypothetical instead of real decision-making incentives remains under debate after decades of economic experiments. Standard incentivized experiments involve substantial monetary costs due to participants' earnings and often logistic costs as well. In time preferences experiments, which involve future payments, real payments are particularly problematic. Since immediate rewards frequently have lower transaction costs than delayed rewards in experimental tasks, among other issues, (quasi)hyperbolic functional forms cannot be accurately estimated. What if hypothetical payments provide accurate data which, moreover, avoid transaction cost problems? In this paper, we test whether the use of hypothetical - versus real - payments affects the elicitation of short-term and long-term discounting in a standard multiple price list task. One-out-of-ten participants probabilistic payment schemes are also considered. We analyze data from three studies: a lab experiment in Spain, a well-powered field experiment in Nigeria, and an online extension focused on probabilistic payments. Our results indicate that paid and hypothetical time preferences are mostly the same and, therefore, that hypothetical rewards are a good alternative to real rewards. However, our data suggest that probabilistic payments are not.