Job Market Paper:
Present Bias, Preference Heterogeneity, and Wealth Inequality over the Life-cycle
- Received Kleinsorge Research Fellowship
This paper studies present bias in a life-cycle model with heterogeneous preferences. Previous research outlining the role of behavioral biases in the macroeconomy largely falls into one of three categories: (1) partial equilibrium, (2) infinite horizon, and (3) homogenous preferences. In partial equilibrium models, present bias implies a high degree of wealth inequality and low aggregate wealth relative to a society of time-consistent discounters. I find general equilibrium price adjustments mitigate the impact of present bias on both wealth inequality and aggregate wealth. However, present bias affects the timing of wealth accumulation and leads to a dramatic increase in wealth inequality beginning at retirement. Heterogeneous exponential and present biased discounting improve the fit of the model economy by producing a higher concentration of wealth among the top 1% and a higher Gini coefficient, compared to a model in which agents are only heterogeneous in their exponential discount factor. This occurs as time-consistent individuals benefit from the aggregate mis-optimization of their present biased peers, an effect absent in homogenous preference models or models in which prices do not adjust in response to aggregate savings.
Human Capital Formation and Quasi-Hyperbolic Discounting
-PhD Research Paper Award, University of Oregon, Department of Economics, 2017
I study the impact of present bias in a three period overlapping generations model in which agents are tasked with splitting their time between working for a low-skill wage and attending school to increase their human capital while young. Agents then receive a human capital augmented, deterministic wage in period two of their lifetime and retire in the third period. A society populated with present biased agents is characterized by lower human capital and lower consumption in old age than a society of exponential discounters. Further, I find that dedicating tax revenue towards education incentive programs (and reducing social security) increased human capital and consumption in all periods of life for both rational and present biased agents.
Works in Progress:
College Investment and Heterogenous Patience: Do Good Things Come to Those Who Wait?
Present Bias and the Timing of College Dropouts.
Quarter vs Semester Feedback: The Impact of Performance Signals on College Dropout Rates (with Nate Adams)
Distracted Driving and the Incidence of Automobile Accidents (with Ben Hansen, Amani Rashid, and Ariel Roddy)
Heterogenous Learning and the Value of Intergenerational Knowledge Transfers (with Nigel McClung)