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Estimates of "present-bias" among the poor may be exaggerated if poor individuals are credit-constrained and expect to have greater liquidity in the future. I conduct an experiment in rural Pakistan which provides causal evidence of this effect. I use windfalls to generate fully exogenous variation in subjects' liquidity constraints. I show that fluctuating liquidity has a significant and sizeable effect on measures of time-inconsistency, which does not operate via cognitive functioning. Importantly, I establish that the causation runs from tighter liquidity constraints to appearing "present-biased" rather than truly present-biased individuals making choices which lead to tighter liquidity constraints.
Authors
Research Associate World Bank
Rachel Cassidy is a Research Associate of the IFS and a Research Economist at the World Bank's Africa Gender Innovation Lab.
Working Paper details
- DOI
- 10.1920/wp.ifs.2018.2418
- Publisher
- The IFS
Suggested citation
Cassidy, R. (2018). Are the poor so present-biased?. London: The IFS. Available at: https://ifs.org.uk/publications/are-poor-so-present-biased (accessed: 28 March 2024).
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