We propose an evolutionary explanation for the pattern of inter-temporal preference reversals often ascribed to "hyperbolic discounting." We take the view that preferences--manifested, for example, in urges, cravings, and inclinations--are the outcome of evolutionary forces, and so will induce animals or humans to make survival-maximizing choices in "typical" decision problems. We show that if the typical problem involves payoffs whose realization times are uncertain, then optimal preferences give rise to relatively patient behavior when the time horizon is long but induce a switch to impatience when the horizon grows short. Such reversals do not entail dynamic inconsistency in typical decision problems; behavior there is optimal. However, if a decision-maker is confronted with a choice for which the realization-time uncertainty falls outside the evolutionary norm, her preferences may well prompt her to behave inconsistently. We argue that, if such a choice problem recurs, her evolutionarily endowed ability to learn will lead her to make self-commitments against these urges.
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Martin L. Weitzman, 2001.
"Gamma Discounting,"
American Economic Review,
American Economic Association, vol. 91(1), pages 260-271, March.
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Ted O'Donoghue & Matthew Rabin, 1999.
"Doing It Now or Later,"
American Economic Review,
American Economic Association, vol. 89(1), pages 103-124, March.
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