Essays on Intertemporal Choice under Uncertainty
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Abstract Essays on Intertemporal Choice under Uncertainty Pradeep Singh The dissertation investigates intertemporal decision-making under uncertainty. In particular, I analyze how two traditionally under-explored sources of uncertainty affect trade-offs between the present and the future in making decisions: a) uncertainty of life, and b) strategic uncertainty in collective action dilemmas. Chapter 1 deals with the temporal dynamics of value in strategic interactions, and Chapter 2 extends the analysis to incorporate interaction between a homogeneous vis-à-vis a heterogeneous triad. Participants affiliated with different social groups at the University of Washington, Seattle, participated in a series of one-shot Voluntary Contribution Mechanism (VCM) games; the games extended the incentive structure of the VCM to decompose it into the relative temporal change in the public and private accounts, in addition to varying the social composition of the participating groups. Results from the experiment indicate that temporal delay is a significant factor in explaining voluntary contribution, with the outcomes being sensitive to the time horizon. To gauge the mechanisms of voluntary contribution with delayed rewards, the hypothesis as to whether expectation of how others' value the future affect one's own contribution was also tested. The results indicate that conditioning on our future self, how others value the future enters our calculus of voluntary contribution, but conditioning on our present self it has no effect. In "real life" settings, that benefits from cooperative behavior materialize in the near or distant future is perhaps the general rule. The proper functioning of markets is built upon cooperation between buyer and seller, the benefits of which are often realized in the future (for example, e-commerce or group buying schemes). The provision of public goods, whether it be providing immunization to a village, restoring a natural park, or contributing towards global public goods such as carbon offset projects - each have a temporal element embedded into them. In climate change and environmental negotiations, different countries with differing stated valuations of the future interact to provide a global public good, i.e. a habitable climate. Summers and Zeckhauser (2008) note that at International Panel of Climate Change (IPCC) negotiations, how to discount the future is always a thorny issue. Other real-life applications such as the contours of racism and the role of cliques in organizational behavior can also be better understood by unpacking the interaction between social and temporal preferences in collective action. Future studies confirming the robustness of the results, finding contradictory evidence, as well as testing hypothesis not found significant in the present study will be a fruitful line of inquiry. While there has been a plethora of studies on discounting behavior in individual decisions that have documented the phenomenon of present-bias (Kahneman, 1979; Frederick and Loewenstein, 2002), the results from the first two chapters contributes to the nascent literature in the field of discounting in strategic interactions that have been conducted to date by Deck and Jahedi (2013a, 2013b). Chapter 3 analyzes data from the World Bank Living Standard Measurement Survey (LSMS) conducted in Nepal (2003/04 and in 1995/96), in addition to the data on conflict measures collected by INSEC, a non-profit group promoting human rights, to gauge the effect of the "Maoist" civil war on agricultural household decision-making. Results indicate that in addition to causing the destruction of physical capital, life and the deterioration of social norms, the civil war was associated with changes in future-oriented decision making and inhibited household investments in the future. The evidence suggests that the civil conflict in Nepal further exacerbated the existing poverty levels by inhibiting investment levels further pushing households deeper in the chasm of a "poverty trap."
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