Hyperbolic discounting may be time consistent
AbstractUsing dynamic programming methodology, the paper analyzes the most general conditions for an additive utility functional to represent time consistent preferences. It challenges the conventional wisdom of the domain, which, following Strotz(1956), assume that only exponential discounting is compatible with time consistent behavior. The paper gives some examples of special time consistent hyperbolic discount functions and also discuss the relation between time consistency and stationarity.
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Bibliographic InfoArticle provided by AccessEcon in its journal Economics Bulletin.
Volume (Year): 29 (2009)
Issue (Month): 4 ()
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intertemporal choice; consumption and saving; time consistency; time discounting; exponential discounting; hyperbolic discounting;
Find related papers by JEL classification:
- D9 - Microeconomics - - Intertemporal Choice
- E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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The Quarterly Journal of Economics,
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- Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
- Nicolas Drouhin, 2012. "A rank-dependent utility model of uncertain lifetime, time consistency and life insurance," UniversitÃ© Paris1 PanthÃ©on-Sorbonne (Post-Print and Working Papers) halshs-00748662, HAL.
- André Lapied & Olivier Renault, 2012.
"An Investigation of Time Consistency for Subjective Discontinued Utility,"
- André Lapied & Olivier Renault, 2012. "An Investigation of Time Consistency for Subjective Discontinued Utility," AMSE Working Papers 1210, Aix-Marseille School of Economics, Marseille, France.
- Orlando Gomes & Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2012. "Exponential Discounting Bias," Working Papers Series 2 12-05, ISCTE-IUL, Business Research Unit (BRU-IUL).
- Nicolas Drouhin, 2012. "A rank-dependent utility model of uncertain lifetime, time consistency and life insurance," Working Papers halshs-00748662, HAL.
- André Lapied & Olivier Renault, 2012. "A subjective discounted utility model," Economics Bulletin, AccessEcon, vol. 32(2), pages 1171-1179.
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