On Depth and Retrospect: “I Forget, and Forgive – but I Discount”
AbstractThe discounting of future felicity flows transposes to the inter-temporal optimisation context the assumption of interest-bearing wealth or savings. The validity of the hypothesis has been challenged by several empirical (ir)regularities and by the theoretical implications for human decision processing. In this article, we explore the modifications induced by generalising the typical welfare function in order to accommodate such retrospective influences. The idea is simple – and can be thought inspired in felicity functions encompassing habit formation: to allow for accumulated welfare – of hypothetically “compounded” but also depreciating past-to-current felicity streams – to affect the periodic utility function – which therefore enjoy some durable good properties. Sensitivity of the Ramsey optimal path to the new formulation is also inspected.
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Bibliographic InfoArticle provided by Economics and Econometrics Research Institute (EERI), Brussels in its journal Journal of Economics and Econometrics.
Volume (Year): 55 (2012)
Issue (Month): 3 ()
Time discount; time preference; interest; retrospect theory; durable goods.;
Other versions of this item:
- Ana Paula Martins, 2007. "On Depth and Retrospect: “I Forget, and Forgive – but I Discount”," EERI Research Paper Series EERI_RP_2007_07, Economics and Econometrics Research Institute (EERI), Brussels.
- D90 - Microeconomics - - Intertemporal Choice - - - General
- E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- G00 - Financial Economics - - General - - - General
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- O40 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
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- Ana Paula Martins, 2010.
"Splitting Games: Nash Equilibrium and the Optimisation Problem,"
EERI Research Paper Series
EERI_RP_2010_36, Economics and Econometrics Research Institute (EERI), Brussels.
- Ana Paula Martins, 2010. "Splitting Games: Nash Equilibrium and the Optimisation Problem," Journal of Economics and Econometrics, Economics and Econometrics Research Institute (EERI), Brussels, vol. 53(1), pages 1-28.
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