Patience and the Wealth of Nations Topics in Behavioral and Experimental Economics SS 2015...

Patience and the Wealth of Nations

Topics in Behavioral and Experimental Economics SS 2015

Presentation: Dominik Schaufler

Paper by: Thomas Dohmen, Benjamin Enke, Armin Falk, David Huffman and

Uwe Sunde01/2015

Conceptual Framework

Source: Figure 1, Patience and the Wealth of Nation, p. 4

Hypotheses

• H1: At the aggregate level, patience exhibits a positive reduced-form correlation with income levels and income growth

• H2: Patience is correlated with proximate determinants, in terms of both their levels and corresponding accumulation processes. In addition, none of the proximate determinants alone fully captures the explanatory content of patience with respect to national income.

Hypotheses

• H3: The positive reduced-form relationship between patience and income, and the association between patience and accumulation decisions, extends to disaggregate data at the regional and individual level.

Data collection

• Global Preference Survey, 2012, 76 countries

• 4 noteworthy features:– Preference measures obtained in a comparable

way– Representative population samples– Reflects geographical representativeness– Experimental validated survey items

Measure of patience

• Quantitative: Staircase measure – choice between hypothetical payment today or payment

in 1 year – expressed in local currency

• Qualitative: self assessment on 11 point Scale how willing are you to give something up (completely unwilling to do so – very willing to do so)

• Linear combination makes up patience measure

• Patience = 0.711 Staircase measure + 0,288 Qualitative measure

World map of patience

Source: Figure 2, Patience and the Wealth of Nation

Source: Table 1, Patience and the Wealth of Nation

Sub Samples and Additional measures

• Patience and Effect on Continents odes the relationship exist within continents? – Patience explains around 40% of the variation within

continents (Continents, OECD, Colonized)• Alternative measures– GDP/worker, HDI, subjective statements of well being

• relationship not restricted to GDP/capita as measure.

Measuring Preferences

Unobserved factors?• 3 potential problematic areas: – Financial environment in terms of inflation,

interest rate, borrowing constraints– Context or culture specific interpretations– Systematic shortcuts due to cognitive limitations

Historical Income and growth rates

• If deep cultural roots there should be persistence over time– historical prediction should be possible– Account for population flows

• Higher steady state but also faster growth?– 1820, 1870, 1925, 1950, 1975, 2010• Unconditional correlation • Control for log per capita and continent fixed effects

Role of proximate determinants

• Can any single proximate determinant fully account for the relationship between patience and national income?– Patience and physical Capital (about a third of the

variation explained)– Patience and Human Capital (about 40% of

variation explained)

Patience, factor productivity and institutions

Total factor productivity, R&D expenditures as % of GDP, # Researchers in R&D, Global innovation indexNot only accumulation of factors but also relevant

for accumulation of knowledge + productivity

Institutions: democratic quality, property rights, social infrastructure index, S&P long term credit ratingPatience is a strong correlate of democracy, property

rights and social infrastructure

Condition on proximate determinants

• Relationship should weaken if conditioned on proximate determinants

• it does, but patience remains significant

• No proximate determinate alone fully accounts for explanatory content of patience

Patience within Countries

• (3rd Hypotheses)– Regional level (55 countries, 712 regions)• H3 confirmed, regions are influenced by different levels

of patience

– Individual level• Within countries more patient people tend to be richer

and have a higher education.

• Relationship holds at the individual level

Conclusion

• No identification of causal effects

• Existence of third factors?• Reverse causality?

• Framework with time preference as relevant driver empirically validated.

Thank you

Source: Table 1, Patience and the Wealth of Nation

Sub-Samples

Source: Table 2, Patience and the Wealth of Nation, p. 4

Alternative measures

Source: Table 3, Patience and the Wealth of Nation, p. 4

Historical income

Growth rates in the past 200 years

Patience and phsyical capital

Patience and human capital

Patience and productivity

Patience and institutions

Patience and proximate determinants

Regional patience

Individual patience