Lucía Macchia, Anke C. Plagnol and Stian Reimers. "Does experience with high inflation affect intertemporal decision making? Sensitivity to inflation rates in Argentine and British delay discounting choices". Journal of Behavioral and Experimental Economics. 75, pp. 76–83 (2018). (journal)(download)

 

Delay discounting captures the way in which people devalue rewards which are not immediately available as a function of their delay until receipt. Normatively, decision makers should be sensitive to inflation rates when evaluating delayed rewards, because the value of a delayed outcome is eroded by inflation. We hypothesised that participants from countries with direct experience of high inflation would be particularly sensitive to inflation rates when making intertemporal choices; i.e. they may be more likely to take into consideration the effect of inflation on future rewards. The present study compares intertemporal choices of participants from countries with dramatically different histories of inflation: Argentina and Britain. Participants completed a delay discounting task under two inflation rate conditions (2% and 20%, between subjects). We found that people discounted future rewards more steeply under the 20% inflation rate condition than under the 2% condition. Participants from Argentina, the country with much higher current and historical inflation rates, discounted future rewards more steeply in both inflation rate conditions than participants from the UK. However, Argentines were not more sensitive to inflation rates than British people. These findings suggest that, in abstract intertemporal choice tasks at least, people are sensitive to inflation, but those from a country with high levels of inflation are no more sensitive than those from a country with low inflation.

 

 

Highlights

 

 

• We examined associations between inflation rates and delay discounting in two countries.

• Participants from a low and a high inflation country were presented with two inflation rate conditions.

• Participants from Argentina discounted future rewards more steeply than people from the UK.

• People from the high inflation country (Argentina) were not more sensitive to inflation rates.

• People who were better at calculating compound interest discounted future rewards less steeply.