Time Inconsistency, Expectations and Technology Adoption

Standard neoclassical economic models assume that individuals behave rationally to maximize their utility. But these models can explain the behavior only of individuals who preferences over time remain consistent. Economists have recently argued that preference reversals, or time inconsistency, may play a central role in explaining intertemporal behavior, particularly among poor households, which display “inefficient” behaviors.

However, time-preference parameters are typically not identified in standard dynamic choice models and little is known about the fraction of inconsistent agents in a given population. Aprajit Mahajan formulates a dynamic discrete choice model in an heterogeneous population of possibly time-inconsistent agents in rural India. The model draws upon specifically collected information about agents’ elicited beliefs combined with the results of a field intervention in rural India.