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.:
- Harris, Christopher & Laibson, David, 2001.
"Dynamic Choices of Hyperbolic Consumers,"
Econometric Society, vol. 69(4), pages 935-57, July.
- Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
- Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Burness, H Stuart, 1976. "A Note on Consistent Naive Intertemporal Decision Making and an Application to the Case of Uncertain Lifetime," Review of Economic Studies, Wiley Blackwell, vol. 43(3), pages 547-49, October.
- Salanie, Francois & Treich, Nicolas, 2006.
"Over-savings and hyperbolic discounting,"
European Economic Review,
Elsevier, vol. 50(6), pages 1557-1570, August.
- 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.
- 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.
- repec:hal:cesptp:halshs-00748662 is not listed on IDEAS
- repec:hal:wpaper:halshs-00748662 is not listed on IDEAS
- 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).
- André Lapied & Olivier Renault, 2012. "A subjective discounted utility model," Economics Bulletin, AccessEcon, vol. 32(2), pages 1171-1179.
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