Time and inequality - A study of individual preferences

Abstract: This thesis consists of three papers that study individual preferences. The focus of the first two papers is on time preferences. In the third paper, preferences regarding how inequality in health and income should be defined are elicited.In the first paper, we study the long-term stability of survey-based subjective time preferences using a Dutch household survey panel. We find that while the individual ranking of survey-based subjective time preferences is stable over time, there are considerable shifts in the aggregate over time. To shed light on the observed instability, we first study whether the observed shifts can be explained by shifts in the socioeconomic situation of individuals over the period studied, but find no evidence supporting this. We then study whether the macroeconomic situation at the regional level explains the variation in the aggregated subjective time preferences. Our findings show that economic growth is positively correlated with patience, while income inequality is negatively correlated with patience. Moreover, we find considerable heterogeneity in the relationship between the macroeconomic situation and the survey-based measure of subjective time preferences across income groups.In the second paper, we utilize experimental methods to investigate whether time preferences are context-dependent. More precisely, we study whether time preferences are affected when the cognitive demands of multitasking increase. In our within-subject laboratory setting, multitasking is present in both the treatment and the control tasks and consists of secondary tasks that pop up, demanding subjects' attention from time to time. The secondary tasks are easy in the control group but difficult in the treatment group. The novelty of this paper is that it studies how time perception and cognitive capacity mediate the effect of multitasking demands on time preferences. Results from experimental psychology show that time is experienced as passing quicker when people are cognitively busy. As a result, people perceive the future as being closer, which, in turn, leads to more patience. Conversely, a standard prediction from behavioral economics is that being under cognitive load leads to less patient decisions due to lower cognitive capacity available for the temporal task. Our hypothesis is that when the cognitive demands of multitasking increase, increases in patience, driven by the speeding up of time, and decreases in patience, driven by cognitive deficiency, added together explain the total effect of increasing the cognitive demands of multitasking on time preferences. We find strong evidence for the channel of time perception but fail to find support for the channel of cognitive capacity. In the third paper, we study whether the ethical assumptions regarding the weighting structure underlying the Gini index for income inequality and the concentration index for income-related inequality in health are in line with the views of the Swedish population. Extended versions of these two indices that allow for different weighting structures by incorporating a weighting parameter have been developed. Using an Internet-based survey that was sent out to a representative sample of the Swedish population, we elicit this individual weighting parameter, which describes the relative weight each participant puts on the poorer part of the income distribution relative to the richer part of the distribution when inequality is assessed. Our results show that the estimated weighting parameter of the median respondent for income-related inequality in health is in line with the underlying weighting assumptions of the concentration index. For income inequality, on the other hand, our results show that the median respondent puts higher weight on the poorer part than what is implied by the Gini index. We link the estimated weighting parameters to a variety of socioeconomic background variables, health behavior, and survey-based measures of attitudes and preferences. We find that women and individuals with poorer health status put higher weight on the poorer part when assessing inequality than men and healthier individuals. Our results suggest which weighting parameters' values are reasonable to use when inequality is measured in a Swedish context.