Hyperbolic Discounting and Job Search

Abstract: The theory of hyperbolic discounting can explain why people procrastinate. We test our hypothesis that people do have hyperbolic preferences by studying data describing the job search behavior among unemployed Swedish persons. A decision rather present in time regarding search intensity and a decision concerning reservation wage at a more distant future, will mutually determine the duration of the unemployment spell. A theoretical model introduces a general measure impatience, which captures the certain discount rate people use in order to evaluate present and future utilities. If impatience is significantly correlated with search intensity and insignificantly correlated with reservation wage, the model suggests that the agents have hyperbolic preferences. The results of our empirical test, align with these theoretical predictions. Thus our hypothesis is validated and the evidence of hyperbolic preferences among people is deepened.