Focusing effects and time discounting

Revised and resubmitted Review of Economic Studies Working paper August 2019

In many intertemporal decisions, the benefit of an action is concentrated in a few time periods, while the associated cost is dispersed over numerous periods. According to the ``focusing model” by \cite{Koszegi2013}, the more a utility outcome is concentrated in time, the more a decision maker focuses on and, hence, \textit{over}weights it. Such concentration bias provides a micro-foundation for present-biased and future-biased behaviour. In a novel experimental setup involving dated consumption events, we show that concentration bias causes subjects to increase dispersed effort provision to redeem a restaurant voucher that is concentrated in time by 25\% beyond what exponential and (quasi-)hyperbolic discounting models can account for. In additional between-subject conditions and a~complementary experiment involving monetary payments, we demonstrate the robustness of our findings and study the mechanisms behind concentration bias.

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