Time-Inconsistency and Savings: Experimental Evidence from Low-Income Tax Filers

Preliminary —Please do not cite. We describe a forthcoming field experiment designed to test theories of time-inconsistency, namely a β − δ model of quasi-hyperbolic discounting. The experiment takes place within the context of a savings decision made by low-income tax filers. These tax filers are often offered the option to place their income tax refund in an illiquid savings vehicle at the time that taxes are filed. In addition to testing for time-inconsistency, the results of our study can be used to improve the design of savings incentives for this population, as well as help evaluate the welfare effects of these savings programs. We present evidence from a small-scale, pilot version of the experiment. The pilot study results in point estimates for β and δ of 0.34 and 1.08 over an 8-month period, respectively. The small scale of the pilot limits the precision of these estimates. We discuss refinements to the experimental study in light of the pilot experience. JEL Classification: D14, H24, K34 ∗University of Chicago, The Harris School and NBER, [email protected]. †Stanford University, [email protected].