Financial Literacy and Intertemporal Arbitrage
Luis Oberrauch and
Tim Kaiser
No 1912, Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research
Abstract:
We study the role of financial literacy for inter-temporal decision-making using an adapted version of the Convex Time Budget Protocol (Andreoni and Sprenger 2012). While we find no evidence of dynamically inconsistent preferences in the aggregate, we document substantial heterogeneity in choice-patterns and estimated parameters at the individual-level: We find that subjects with higher levels of financial literacy are more likely to make patient inter-temporal choices, to allocate the entire budget to a single payment-date, allocate the entire budget to corner choices as interest rates increase, and to show individual discount factors which are in line with extra-experimental market rates. At the same time, financial literacy is uncorrelated with choice consistency and estimated individual error parameters. These results serve as suggestive evidence for inter-temporal arbitrage among financially literate respondents, thereby revealing a potential confound in time-preference elicitation tasks relying on time-dated monetary rewards.
Keywords: Intertemporal choice; financial literacy; narrow bracketing; arbitrage (search for similar items in EconPapers)
JEL-codes: D15 D91 G53 (search for similar items in EconPapers)
Pages: 42 p.
Date: 2020
New Economics Papers: this item is included in nep-exp and nep-fle
References: Add references at CitEc
Citations: View citations in EconPapers (2)
Downloads: (external link)
https://www.diw.de/documents/publikationen/73/diw_01.c.802927.de/dp1912.pdf (application/pdf)
Related works:
Working Paper: Financial Literacy and Intertemporal Arbitrage (2020)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
HTML/Text
Persistent link: https://EconPapers.repec.org/RePEc:diw:diwwpp:dp1912
Access Statistics for this paper
More papers in Discussion Papers of DIW Berlin from DIW Berlin, German Institute for Economic Research Contact information at EDIRC.
Bibliographic data for series maintained by Bibliothek ().