Intertemporal choice and the magnitude effect
AbstractA robust finding in experiments on time preference is the magnitude effect: subjects tend to be more patient towards larger rewards. Using a calibration theorem, we argue against standard curvature-based explanations for the finding. We axiomatize a model of preferences over dated rewards that generalizes the standard exponential discounting model by permitting the discount factor to depend on the reward being discounted. The model is shown to behaviorally subsume the hyperbolic discounting model as a special case. When embedded in a sequential bargaining game the model gives rise to multiple stationary subgame perfect equilibria. There may exist equilibria in which the first mover gets a smaller share despite also being the more patient player.
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Bibliographic InfoArticle provided by Elsevier in its journal Games and Economic Behavior.
Volume (Year): 72 (2011)
Issue (Month): 1 (May)
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Web page: http://www.elsevier.com/locate/inca/622836
Discounting Magnitude effect Hyperbolic discounting Preference reversals Calibration theorem Bargaining;
Other versions of this item:
- Jawwad Noor, 2010. "Intertemporal Choice and the Magnitude Effect," Boston University - Department of Economics - Working Papers Series WP2010-041, Boston University - Department of Economics.
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