Behavioral Economics: Related To Intertemporal Choice

Behavioural Economics Assesment

Behavioural Economics is a study that studies the effects of psychological, social and economic decisions of individuals and institutions and the consequences for market price, returns, and resource allocation. In this project, I will be studying a conducted scientific study to test a behavioural concept related to Intertemporal Choice. Economic experiments to test behaviour have become a tool for educational purposes and to understand the concepts more realistically, analysing the situation involving real money or products.

INTRODUCTION

Intertemporal choice is a study in behavioural economics that is the affect of people’s choices at various points in time. It is how people make choices about what and how

To explore intertemporal choice in charitable giving, a experiment was conducted on monthly donors who donated over an extended period of time. A fund-raising strategy was adopted to increase donations by taking into consideration the present-biased preferences. The strategy of Give More in Future consisted of asking existing donors to commit to contribute more in their donations starting from a period in the future. Which was compared with a group, Give more in Present, in which increase in donations is effective from today.

The question is why people make charitable contributions and voluntarily provide public goods in the society. The other question arises is why people contribute when it is in their best interest to free- ride the contribution. Many theories proposed an explanation which stated that it is because of altruism, social information on behaviour and warm-glow(impure

What should be the perfect delay when increasing the donation in future such that the lag is enough to overcome the present-biased preferences. Also, it should be selected while keeping in mind that it affects the minimum cost to the charity. In the field experiment was conducted in collaboration with Diakonia, one of the largest charities in Sweden. Diakonia focusses on International Aid. In the experiment the lag was chosen to be of two months, as one month was too short period to overcome biasedness and three months would cause more cost to the charity.

Third is the reason which affects the charitable behaviour of a donar. It depends on altruism, warm-glow or the intertemporal choices affected by the present biased or the dicounted utility.

In the experiment conducted, the results from the three hypotheses were analyzed then both by the level of increase in donations and the frequency of increase in the donations. The test was on the main assumption that if the delay in the first payment increases the mean donations against the alternative stating that there is no effect of the delay. The three hypotheses were framed in the following manner :

Hypotheses 1 was that the increase in donations was higher when donars were allowed to postpone the first