Dynamically Inconsistent Preferences and Money

Demand∗
†
Emanuele Millemaci Robert J. Waldmann‡
April 28, 2008

Abstract

This paper focuses on two main issues. First, we find that, on average, households’ dis-
count rates decline. This implies dynamically inconsistent preferences. Second, we calculate
an indicator of the degree of dynamic inconsistency that may help us to understand how
households overcome their self-control problems. We use a micro dataset containing house-
holds’ reports on the compensation for receiving hypothetical rewards with delays. We find
that individuals with more severely dynamicly inconsistent preferences on average hold a
statistically significantly lower share of their total wealth in checking accounts. A possible
interpretation is that subjects use precommitment strategies to limit their temptation to
consume immediately. (JEL classification: D11, D12, D90 )

Key words: Behavioral Economics, Intertemporal choice, Hyperbolic Discounting, Dynamic

Inconsistency, Precommitment.

∗ This research wouldn’t have been possible without the CentER at the University of Tilburg that supplied us
with the data.
† Facoltá di Economia, Universitá di Roma ”Tor Vergata”.Corresponding author. Tel.: 011-39-09-069-2829.

Email address: emamillemaci@libero.it.

‡ Facoltá di Economia, Universitá di Roma ”Tor Vergata”.

1
1 Introduction

Over the last two decades, empirical research on intertemporal choice has documented various
inadequacies of the Discounted Utility Model (DUM) as a descriptive model of behavior. One
major limitation of the traditional DUM is the assumption that discount rates (DR) are constant
over time. Many empirical works have shown they decline over time, following a pattern often
referred to as ”hyperbolic time discounting”1 .
Three main findings support the hyperbolic discounting hypothesis. First, the average dis-
count rate over longer intervals is lower than the average discount rate over shorter intervals.
Second, there is evidence of preference reversals. They are said to occur when a subject prefers
an immediate smaller reward over a delayed larger reward, but prefers the delayed larger reward
when a constant delay is added to both options. Third, hyperbolic discounting is consistent with
demonstrations of preference for commitment, that is evidence of people choosing to constrain
their future choices. For example, a person may want to hold only a low part of her total wealth
as money to limit her future consumption.
Nonetheless, economists have continued to use models with the exponential discount function,
because of its appealing properties and because it is the only discount function that generates
dynamically consistent preferences.
In the economics literature, R.H. Strotz (1955-1956) was the first to consider alternatives
to exponential discounting. He proposed two techniques for analyzing the behavior of a person
who foresees how her preferences will change over time, the “strategy of precommitment” and
the “strategy of consistent planning”. In the following years, the majority of economic research
has studied the quasi-hyperbolic discount function, which is usually defined in discrete time.
This discount function was first used by Phelps and Pollack (1968) to study intergenerational
discounting. More recently, Laibson (1997) applied this discount function to intra-personal de-
cision problems. Laibson and his collaborators (1998, 2001) have used the quasi-hyperbolic
formulation to explore the implications of hyperbolic discounting for consumption-saving be-
havior. They explore the role of illiquid assets, such as housing, as an imperfect commitment
technology, emphasizing how a person could limit over-consumption by tying up her wealth
in illiquid assets. They show how hyperbolic discounting may explain some stylized empirical
facts, such as the excess comovement of income and consumption, the existence of asset-specific
marginal propensities to consume, low levels of precautionary savings, consumption disconti-
nuities at retirement, and the correlation of measured levels of patience with age, income, and
wealth.
An important issue arises when a person has time-inconsistent preferences: Is she aware
that her preferences will change over time? Strotz (1955-1956) and Pollak (1968) proposed
two extreme alternatives: At one extreme, a person could be completely ”naive” and believe
1 An accurate review on time discounting is provided in the paper by Frederick et al. (2002).

2
that her future preferences will be identical to her current preferences. At the other extreme, a
person could be completely ”sophisticated” and correctly predict how her preferences will change
over time. O’Donoghue and Rabin (1999) examine the importance of people’s sophistication
about their own time inconsistency. Being sophisticated (as opposed to naive) means that
a person’s behavior is partially driven by reactions to anticipated future misbehavior. For
instance, some results, such as holding illiquid assets might be driven by such reactions to future
misbehavior. To understand such effects, O’Donoghue and Rabin (2001a) introduce a formal
model of partial naivete, where a person is aware that she will have future self-control problems
but underestimates their magnitude2 .
Discount rates (DR) can be inferred from the observation of real world behavior or on the
basis of direct verbal elicitation. Which approach gives a better estimation cannot be said as
both of them are vulnerable to methodological critiques. Frederick et Al. (2002) show that DR
vary widely across studies, across individuals, across choice domains and across time. They find
a considerable variation in the imputed discount rate, with the equivalent annualized estimation
ranging from -6% to infinity. Moreover, they find no evidence of methodological progress in that
the range of estimates does not seem to be shrinking with time. Finally, high levels of discounting
predominate. Nonetheless, dozens of empirical studies have used these DR to explore a variety
of behaviors and traits.
We use DR obtained by direct questions embedded in the DNB household Survey (DHS),
collected by CentER, where respondents are asked to indicate the amount of money they require
to compensate for the receipt of hypothetical rewards later in time (in three months and a year).
Non-exponential discounting may give a theoretical explanation to apparently anomalous
facts that contradict some fundamental assumptions of traditional models involving intertem-
poral choice. One of these facts is the contrast between the high rate of credit card borrowing
and observed levels of lifecycle wealth accumulation. Angelotos et al. (2001) perform simula-
tions of standard lifecycle models and find that they fail to simultaneously match both these
phenomena. The magnitude of the observed retirement wealth accumulation is consistent with
discount rates around 5%, where actual credit card borrowing would require a 18% DR. The
authors identify a partial resolution of this debt puzzle by allowing the subjects to have a quasi-
hyperbolic discount function (Phelps and Pollak, 1968). In an experimental analysis, Benhabib
et Al. (2005) find clear evidence against both exponential and quasi-hyperbolic discounting in
favor of a specification with a small present bias in the form of a small fixed cost that vanishes
for economically relevant monetary rewards.
Our paper adds an empirical contribution on these issues. Firstly, we find new evidence on
the form of the discount function. Secondly, we elicit a dynamic inconsistency indicator (DII)
and test whether subjects with dynamic inconsistent preferences (DIP) choose to keep a lower
share of their total wealth in checking accounts.
2 More discussion on the role of sophistication vs. naivete is provided by O’Donoghue and Rabin(2001b).

3
 We find evidence that subjects with DIP hold less wealth in checking accounts. This result
is robust to various specifications of the sample and to the inclusion of a wider number of
liquid assets, and significant at the 1% level with t-statistics ranging from 3 to 4.2. A possible
interpretation is that individuals implement precommitment strategies to prevent themselves
from consuming more in the future than would be ideal from the perspective of the present
(Shefrin and Thaler, 1981; Laibson, 1997).
We also test whether individuals with DIP choose to contribute a higher amount to employer-
sponsored savings plans, whether they buy more expensive accommodations and/or hold higher
mortgage loans. We find only weak evidence of higher contributions to savings plans and no
evidence of buying more expensive accommodations and holding higher mortgage loans.
The reminder of the paper is organized as follows. Section 2 describes the main features of
the dataset, define the dynamic inconsistency indicator and show its correlation with statements
about individuals’ future orientation, and presents the econometric model. Section 3 includes
the results and section 4 concludes.

2 Data and Empirical Specification

Our analysis is based on the DNB household Survey (DHS), collected by CentER, a research
institute at the University of Tilburg (The Netherlands) that covers the period between 1993
and 2006. DHS is a household survey in which all members of the household are requested to fill
out a questionnaire. Children are, however, excluded from most of the survey questions when
they are below 163 .
The DHS is an unbalanced panel. When the survey started, it consisted of two panels,
one representative of the Dutch population (RE), including 1,760 households, and the other
representative of high-income earners with an annual gross income higher than Dfl. 105,000 (HI),
including approximately 900 families. The last wave of the panel consists of 1,800 households in
the RE panel and only 29 in the HI panel. The severe reduction in the HI panel is due to the
fact that since 1997 new families have not been recruited for the HI panel, so it quickly shrank
as the higher income families exited the panel.
The dataset is uniquely suited for our purposes, because it contains both questions on assets
and liabilities (including checking account balances, home ownership and mortgages) and a
number of psychological variables containing subjective information, including the indication of
the extra-compensation for receiving hypothetical rewards with a delay4 .
The period we consider in our analysis runs from 1997 to 2002, as some variables of interest
were collected only in these years. All variables are derived from the self reported information
3A
description of the dataset can be found in Giamboni et Al. (2007).
4 This
latter information has been used in a number of empirical works (for instance, see Nyhus, 1999 and
Donkers and van Soest, 1999.

4
in the questionnaire. Self reported information on income, assets and liabilities have been
aggregated by CentER.
The dataset includes questions that, under some assumptions, can be used to derive subjec-
tive discount rates. These are sixteen questions involving different time horizons(three months
and a year), size of amounts (1000 and 100,000 Dfl.) and different framing (receipt/payment and
delay/speed-up). Respondents are asked to state the present (or future) amount, which in their
opinion is equivalent to a future (or present) amount presented by the researcher. When the
respondents answer, they implicitly use a discount rate, which is assumed to be their subjective
discount rate. As delayed consequences are often associated with risk, it is stressed that the
delays are without any risk of loosing a reward or avoiding a payment.
In our analysis we focus on the pair of questions concerning the compensation they require
for receiving their hypothetical money reward with a delay of either three months and a year.
The exact English translation of of these questions is reported below (translated from Dutch by
CentER):

Imagine you win a prize of Dfl. 1000 in the National Lottery. The prize is to paid
out today. Imagine, however, that the lottery asks if you are prepared to wait THREE
MONTHS(A YEAR) before you get the prize. There is no risk involved in this wait.
How much extra money would you ask to receive at least to compensate for the waiting
term of three months? If you agree on the waiting term without the need to receive
extra money for that, please type 0 (zero).

Table 1 contains descriptive information of responses on extra-compensation. The number

of respondents in the section on psychological concepts are over two thousands per year, except
the second and third waves where the respondents are significantly less (column 1). Almost all
interviewed respondents gave valid answers in the first three waves, while the rate of meaningful
responses was lower in the subsequent waves (col. 2). As expected, more individuals did not
request extra money when the time delay was shorter. The share of ”zero” answers declines with
time for both delays, while the number of non responses increases. Some respondents may have
used ”zero” and ”do not know” as substitutes. If this is true, using observations with DR = 0
may return biased estimates. Moreover, it is reasonable to expect that, among respondents who
did not ask for compensation, some have a negative DR because they want to restrain themselves
from spending all the money at once, i.e., are prepared to pay a premium to enforce self-control
(Shefrin and Thaler, 1988; Kahneman and Thaler, 1991). In previous analyses of similar data
(e.g. Daniel, 1994), the respondents with a DR = 0, were deleted from the sample. This
treatment of the respondents who did not use a positive discount rate, indirectly relies on an
assumption that the decision of whether to use a positive discount factor was made completely
at random. We will perform our estimates both including and excluding these observations.

5
 [Table 1 About Here]

DR can be derived from the questions by the following two simple rules:

Question 1:
 4
extra amount of money
DR3 = 1 + −1
1000
Question 2:
extra amount of money
DR12 =
1000
DR obtained in this fashion can only be interpreted under the following assumptions (see also
Read, 2004): (a) Both the present and delayed outcomes occur with certainty. (b) All outcomes
are consumed immediately. (c) The outcomes are context independent. As a simple example,
consider a liquidity constrained person who expects her income to increase with time. For this
person, the future outcome evaluated in the context of her future wealth may indeed carry a
lower utility than the present outcome evaluated in the context of her present wealth. (d) The
utility of the outcome (x) is multiplicative in x. This means that the function linking u(x) to x is
approximately linear over the relevant range. (e) Utility from outcomes is timing independent.
Expressed more formally, this assumption states that u(x1) is independent of when x1 occurs.
Table 2 shows means and standard errors of the two annualized discount rates by years. The
first two columns refer to the annualized three months discount rates (DR3 ), while the others
refer to the annual discount rates (DR12 ). Note that, on average, the DR3 are more than three
times higher than the DR12 , except for the last two years where average DR3 is 2.5 times higher
than average DR12 This finding is evidence against the exponential discount function. However,
this information is not sufficient to clearly identify which alternative discount function is used
by individuals. The hyperbolic function, the quasi-hyperbolic with variable or fixed cost or
even other explanations may be consistent with our evidence (see Benhabib et Al., 2005, for a
discussion on the identification of the true discount function).

[Table 2 About Here]

Table 2 also shows that the DR3 have more variability than the DR12 , suggesting that
individuals are more heterogeneous when the delay is short and that such differences decline as
the delay increases.

2.1 Dynamically Inconsistent Discount Rates

Constant DR as implied by traditional theories on the intertemporal choice are not the common
scheme to which agents refer when they think about the future. Figure 1 show the relationship

6
between the two subjective DRs and give a sense of the agents’ time inconsistency. The more
individuals are far from the bisecting line the more they have dynamic inconsistent preferences.

[Figure 1 About Here]

A quantitative measure of DIP can be easily derived from our inferred DR by the formula:

1 + DR3
DII ∗ = −1
1 + DR12
If DII ∗ is close to zero, individuals have approximately constant DR and hence dynamic
consistent preferences. The reverse is true the more DII ∗ is far from zero. Overall, 5,327
respondents exhibit DII ∗ > 0, while 1,315 have negative DII ∗ . As our analysis only focuses on
the behavior of those with subjective discount rates declining as the time delay increases, in the
next sections we substitute DII ∗ with this simple transformation:

1+DR3


 1+DR12 −1 if DII ∗ ≥ 0
DII =

if DII ∗ < 0

 0

2.2 Correlation with statements about future orientation

The DHS also contains 10 statements about agent’s future orientation to which respondents are
asked to what extent they agree or disagree. They refer to intertemporal choice, or equivalently,
to the trade-off between the present and the future. We expect them to be very good reflections
of the individual discount rate. For instance, people that agree to a large extent with the
statement ”I am only concerned about the present, because I trust that things will work out in
the future” will generally have a higher discount rate. Statement 1, 2, 5, 6 and 7 have negative
expected correlations with time discounting, the others have positive expected correlations.
If our measures of DR are valid alternatives to the true DR (which are unobservable to the
researcher), we expect to find them to be highly correlated with the answers to these statements5 .
Table 3 shows the correlations between these statements and DR3 , DR12 and DII. We find
that correlations have the expected sign and are often significant. In only three cases (Statements
5, 6 and 8) correlation coefficients are not significant at the 5% level. These findings suggest
that DII is valid and useful for our purposes.

[Table 3 About Here]

5 The exact wording of all statements (back-translated from the Dutch) is provided in the appendix.

7
2.3 Econometric specification
To investigate whether individuals with DIP use precommitment devices as reducing the checking
account balances in order to constrain themselves from consuming more into the future than
they currently plan, we estimate this equation:

At = α1 DIIt + α2 Xt + α3 Zt + ηt+1 (1)

where At indicates the amount of a specific household liquid/illiquid asset; DIIt is the dynamic
inconsistent indicator; Xt is a set of variables including the family’s income and the family’s
total wealth, their square roots, the subjective expected inflation rate, the number of income
recipients in the household, the number of people in the household and whether any household
member is looking for a job; Zt is a set of controls including the employment sector (whether
public or private), time and regional dummies; ηt+1 is the error term. The square roots of income
and total wealth are included to account for non linear relations with the dependent variable.
Data on wealth have been reported by the agents in the questionnaires on assets and liabilities
and accommodation and mortgages and then aggregated by CentER into a dedicated data set.
If the respondent declared ownership of a particular asset but didn’t report its value, he was
asked to choose among several intervals. If he choose a range, the middle value of the range is
imputed, otherwise no value is reported. Household total wealth is obtained summing durable
goods together with savings, checking account balances, bonds, stocks, debts and real estate of
all the family’s members.
The estimate of income comes from CentER, which aggregates self reported personal financial
information. Family income is obtained by summing the incomes of all the family’s members.
Survey data may contain a certain number of incorrect answers because of misunderstanding
of questions by respondents. Some of our data may be affected by such mistakes, particularly,
answers where respondents have indicated as compensation an amount of money that equals
or even exceeds the 100 percent of the total amount of the reward. In these cases, we suspect
respondents may just have not indicated the monetary compensation for the delay but the total
amount they wished to receive at the delayed time to be indifferent with having the reward
immediately. Hence, we replicate our estimates after dropping those observations demanding
extra-compensation ≥ 1000 Dfl.

3 Results
In this section we report the results of the empirical model presented in section 2.3. All estimates
are performed by STATA’s robust regression.
Our measures of total wealth, liquid and illiquid assets refer to the entire family, while DII
and subjective inflation refer to heads of households.

8
 Our dependent variable is the household’s demand for money. The demand for money repre-
sents the desire of households and businesses to hold assets in a form that can be easily exchanged
for goods and services. We present two different measures to proxy the household demand for
money. The first is given by the net money balance on checking accounts (Table 4). The second
also adds savings accounts, savings certificates and deposit books (Table 5).

[Table 4 About Here]

[Table 5 About Here]

Columns (1) report estimates of the entire sample. Columns (2) include observations with
reported extra-compensations greater than zero, as we suspect that some respondents may have
used ”zero” and ”do not know” as substitutes. Columns (3) include observations with positive
extra-compensations and less than 1000 Dfl, hence dropping individuals that may have com-
mitted the mistake of reporting not just the extra-compensation but the total amount they
wished to receive on the delayed time. Finally, columns (4) and (5) consider observations with
positive extra-compensations and subjective discount rates, respectively, equal or less than 20
% and 10 %, to understand whether the estimated coefficients are influenced by the inclusion of
observations with very high discount rates.
Columns (1-3) show that the coefficients on DII all have the expected sign and are significant
at the 1 % or 5 % levels. Individuals with DIP choose to reduce their checking account balances
and do the same with the other more liquid assets. They might do so, because they are conscious
they suffer from self-control problems. The result suggests that they may be implementing
the precommitment strategy of reducing the amount of liquid assets they can be tempted to
exchange for immediate consumption. All specifications have reasonable explanatory power as
R2 are around 18 %.
Interest rates do not seem to play an important role. The number of income recipients in
the household has a positive and significant coefficient, while the coefficient on the number of
people in the household is negative and significant.
When considering only subjects with smaller subjective discount rates (Columns 4-5), co-
efficients on DII still have the expected sign and show higher magnitude than the previous
estimates. This confirms that our results are not driven by the inclusion of observations with
high subjective discount rates. Smaller t-statistics are due to the substantial reduction of the
sample size and to the fact that the restriction on the discount rates actually select individuals
with less dynamically inconsistent preferences.

9
4 Conclusion
We have presented evidence that contributes to disentangle some apparently contradicting facts
regarding the main financial decisions by households: for instance, the coexistence of widespread
borrowing and the high level of total wealth owned by elderly consumers.
Our results suggest that (1) discount rates are not constant over delays but decline; (2)
people with move severely dynamically inconsistent preferences hold less liquid assets. These
findings may be interpreted as evidence in favor of precommitment. Indeed, individuals may try
to overcome their future self-control problems by choosing to hold less wealth in a liquid form.

10
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12
 Appendix
Statements about future orientation

Respondents are asked to indicate to what extent they agree or disagree with the following
statements:
(1) I think about how things can change in the future, and try to influence those things in
my everyday life. (2) I often work on things that will only pay off in a couple of years. (3) I
am only concerned about the present, because I trust that things will work themselves out in
the future. (4) With everything I do, I am only concerned about the immediate consequences
(say a period of a couple of days or weeks). (5) I am ready to sacrifice my well-being in the
present to achieve certain results in the future. (6) I think it is important to take warnings about
negative consequences of my acts seriously, even if these negative consequences would only occur
in the distant future. (7) I think it is more important to work on things that have important
consequences in the future, than to work on things that have immediate but less important
consequences. (8) In general, I ignore warnings about future problems because I think these
problems will be solved before they get critical. (9) I think there is no need to sacrifice things
now for problems that lie in the future, because it will always be possible to solve these future
problems later. (10) I only respond to urgent problems, trusting that problems that come up
later can be solved at a later stage.

13
Figure 1: Comparison among Discount Rates

14
Table 1: Data on compensation for delays (three months and a year) in the reception of a money
reward: descriptive statistics

Year Respondents Rate of Resp. ”Zero’s” (%) Positive (%)

Three Months Delay

1997 2660 98 33 67
1998 1365 99 29 71
1999 1368 100 26 74
2000 1934 75 27 73
2001 2663 70 17 83
2002 2358 84 14 86

A Year Delay
1997 2660 98 17 83
1998 1365 99 14 86
1999 1368 100 14 86
2000 1934 75 9 91
2001 2663 70 7 93
2002 2358 84 7 93

Table 2: Data on compensation for delays in the reception of a money reward: means and
standard errors
Three Months A Year
Year Mean S.E. Mean S.E.

1997 84 226 24 25
1998 79 209 25 26
1999 95 255 25 27
2000 77 202 26 27
2001 59 169 24 25
2002 60 171 24 25

15
 Table 3: Correlation between statements on future orientation and DR3 , DR12 and DII
DR3 DR12 DII
(1) (2) (1) (2) (1) (2)
Things can change in future, try influence now -2.4099 (-1.56) -0.4333 (-2.06) -15.9613 (-1.32)
Work on things that will pay off later -2.94196 (-2.00) -0.46182 (-2.32) -10.48818 (-0.92)
Only concerned ab. present, trust future 4.11874 (2.74) 0.47694 (2.34) -4.81724 (-0.41)
Only concerned ab. immed. consequences 3.61410 (2.38) 0.86870 (4.29) 3.79724 (0.32)
Ready to sacrifice present for future -1.66912 (-1.05) 0.12211 (0.57) -3.88821 (-0.31)
Take warnings even if conseq. in future -2.00016 (-1.12) 0.00346 (0.01) 0.10283 (0.01)
Important work on things conseq. future -4.19965 (-2.43) -0.68940 (-2.94) 7.71920 (0.56)
Ignore warnings about future problems 2.94080 (1.67) 0.25109 (1.08) -0.01605 (-0.90)
No need sacrif. because can solve later 3.83813 (2.30) 0.27338 (1.24) 0.43749 (0.03)
Only respond to urgent problems 5.41590 (3.40) 0.46204 (2.18) 0.95800 (0.08)

Notes: The rows report a summary of the 10 statements about future. The columns display the coefficients and the
t-statistics for three variables: annual three months and twelve months discount rates and the dynamic inconsistency
indicator

Table 4: Estimation results: money balance of checking accounts

(1) (2) (3) (4) (5)

DII -22.528** -23.597** -254.308* -5160.209** -8000.934

(-2.10) (-2.10) (-3.94) (-2.19) (-0.98)
Income 0.025* 0.031* 0.032* 0.013* 0.036*
(10.86) (12.38) (12.05) (3.55) (6.75)
Income1/2 -4.041* -5.395* -5.618* -3.009** -6.597*
(-5.40) (-6.27) (-6.15) (-2.07) (-3.17)
T otalW ealth -0.002* -0.002* -0.002* -0.002* -0.003*
(-8.04) (-7.42) (-6.32) (-3.55) (-3.40)
T otalW ealth1/2 3.615* 3.562* 3.664* 4.060* 5.016*
(17.58) (15.19) (13.72) (8.81) (7.12)
Esu
t πt+1 2.498 -0.132 1.750 -0.145 -14.410
(0.49) (-0.02) (0.25) (-0.01) (-0.67)
famsize -116.037* -129.192* -131.882* -112.511* -87.541
(-7.15) (-6.62) (-6.26) (-2.99) (-1.55)
looking -187.858 -199.451 -237.241 -355.455 -645.351
(-1.56) (-1.40) (-1.50) (-1.27) (-1.38)
recipient 160.864* 169.165* 177.526* 298.989* 166.381
(3.27) (2.92) (2.86) (2.86) (1.06)
R-squared 0.173 0.181 0.188 0.147 0.221
N 4972 3864 3497 1580 775

Notes: The table reports results when the total balance of family checking accounts is regressed on the dynamic
inconsistent indicator, income, the square root of income, total wealth, the square root of total wealth, the expected
inflation rate (Etsu πt+1 ), the number of family components, the number of job seekers, the number of recipients
and some controls including time and regional dummies. Column (1) reports estimates using the entire sample.
Column (2) includes observations with reported positive extra-compensation. Column (3) considers observations
with reported positive extra-compensation and less than 1000 Dfl. Finally, columns (4) and (5) include observations
with positive extra-compensation and, respectively, annual discount rates equal or less than 20% and 10%. *, **,
*** indicate coefficients are significative at 1, 5 and 10 %, respectively. T-statistics are reported in parentheses.

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Table 5: Estimation results: sum of checking accounts, savings accounts, savings certificates and
deposit books
(1) (2) (3) (4) (5)

DII -141.777* -159.187* -1132.051* -1.63e+04 -6.27e+04

(-2.72) (-2.87) (-3.51) (-1.21) (-1.30)
Income 0.063* 0.063* 0.059* 0.030 0.086*
(5.69) (5.11) (4.51) (1.45) (2.75)
Income1/2 -8.652** -8.923** -8.601*** 0.067 -18.116
(-2.39) (-2.10) (-1.89) (0.01) (-1.47)
T otalW ealth -0.014* -0.013* -0.018* -0.021* -0.049*
(-11.88) (-10.39) (-11.96) (-7.38) (-10.97)
T otalW ealth1/2 21.083* 21.171* 24.678* 30.381* 51.021*
(21.31) (18.47) (18.79) (11.87) (12.95)
Esu
t πt+1 -1.736 -0.188 -8.463 77.007 -79.487
(-0.07) (-0.01) (-0.25) (0.90) (-0.63)
famsize -641.541* -641.727* -701.998* -1007.740* -528.525
(-8.15) (-6.65) (-6.67) (-4.70) (-1.58)
looking -1195.125** -1184.407*** -1381.777*** -1406.709 -5150.839***
(-2.04) (-1.69) (-1.74) (-0.88) (-1.86)
recipient 613.171** 689.405** 652.433** 215.496 -545.289
(2.57) (2.41) (2.11) (0.36) (-0.59)
R-squared 0.180 0.176 0.179 0.157 0.209
N 4973 3866 3499 1580 775

Notes: The dependent variable, that is given by the sum of checking accounts, savings accounts, savings certificates
and deposit books, is regressed on the dynamic inconsistent indicator, income, the square root of income, total wealth,
the square root of total wealth, the expected inflation rate (Etsu πt+1 ), the number of family components, the number
of job seekers, the number of recipients and some controls including time and regional dummies. Column (1) reports
estimates using the entire sample. Column (2) includes observations with reported positive extra-compensation. Col-
umn (3) considers observations with reported positive extra-compensation and less than 1000 Dfl. Finally, columns
(4) and (5) include observations with positive extra-compensation and, respectively, annual discount rates equal or
less than 20% and 10%. *, **, *** indicate coefficients are significative at 1, 5 and 10 %, respectively. T-statistics
are reported in parentheses.

17