This research uses economic experiments to empirically test fundamental theories about how people make economic decisions in dynamic situations. Existing experiments on intertemporal choice do not provide conclusive evidence for or against these theories, because they do not control for the fact that subjects might expect changes in their future financial situation.
The investigators conduct a series of experiments designed to address this problem. In their experiments, they ask subjects to decide between dated prizes that are contingent on the subject's real income. The prizes are either a money payment to the subject or a contribution to a charity chosen by the subject.
The experiments are conducted in Iceland in collaboration with researchers from the Internal Revenue Services of Iceland and the University of Reykjavik. Iceland is unique because under Icelandic law personal income tax returns are public information, so the investigators will be able to determine each subjects actual earned income in future years.
This research will resolve a debate in economics that is directly relevant for public policy. Researchers have been concerned that many people do not make consistent choices in dynamic situations. If this is the case, then society may be better off with public policies that constrain individual choices about retirement savings, unhealthy behaviors, and other goods where an individual may choose pleasure today despite large costs in the future. The results will tell us if inconsistent choices are truly a widespread phenomenon.
