Are the poor so present-biased

Document type
Working Paper
Cassidy, Rachel
Institute for Fiscal Studies
Date of publication
17 October 2018
IFS Working Paper; WP18/24
Poverty Alleviation Welfare Benefits and Financial Inclusion, Community Development and Regeneration
Social welfare
Material type

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This working paper uses windfalls to generate fully exogenous variation in subjects' liquidity constraints. It shows that fluctuating liquidity has a significant and sizeable effect on measures of time-inconsistency, which does not operate via cognitive functioning. Importantly, this paper establishes 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.

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