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A Theory of Time Preference

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  • Trostel, Philip A
  • Taylor, Grant A
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    Abstract

    This article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption (eventually) falls as their mental and physical abilities (eventually) decline with age. Moreover, contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age, this article asserts that discounting increases over the life cycle. This hypothesis is supported by data from the Panel Study of Income Dynamics as well as evidence from numerous previous studies. Copyright 2001 by Oxford University Press.

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    Bibliographic Info

    Article provided by Western Economic Association International in its journal Economic Inquiry.

    Volume (Year): 39 (2001)
    Issue (Month): 3 (July)
    Pages: 379-95

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    Handle: RePEc:oup:ecinqu:v:39:y:2001:i:3:p:379-95

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    Cited by:
    1. De Fraja, Gianni, 2009. "The origin of utility: Sexual selection and conspicuous consumption," Journal of Economic Behavior & Organization, Elsevier, vol. 72(1), pages 51-69, October.
    2. Read, Daniel & Read, N. L., 2004. "Time discounting over the lifespan," Organizational Behavior and Human Decision Processes, Elsevier, vol. 94(1), pages 22-32, May.
    3. Junji Kageyama, 2009. "On the intertemporal allocation of consumption, mortality and life-history strategies," MPIDR Working Papers WP-2009-008, Max Planck Institute for Demographic Research, Rostock, Germany.
    4. Booij, Adam S. & van Praag, Bernard M.S., 2009. "A simultaneous approach to the estimation of risk aversion and the subjective time discount rate," Journal of Economic Behavior & Organization, Elsevier, vol. 70(1-2), pages 374-388, May.
    5. Li-Wei Chao & Helena Szrek & Nuno Sousa Pereira & Mark V. Pauly, 2009. "Time preference and its relationship with age, health, and survival probability," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 4(1), pages 1-19, February.
    6. Bernard M.S. van Praag & Adam S. Booij, 2003. "Risk Aversion and the Subjective Time Discount Rate: A Joint Approach," Tinbergen Institute Discussion Papers 03-018/3, Tinbergen Institute.
    7. De Fraja, Gianni, 2006. "The Origin of Utility," CEPR Discussion Papers 5859, C.E.P.R. Discussion Papers.
    8. Attilio Gardini & Giuseppe Cavaliere & Luca Fanelli, 2005. "Risk Sharing, avversione al rischio e stabilizzazione delle economie regionali in Italia," Rivista di Politica Economica, SIPI Spa, vol. 95(3), pages 219-266, May-June.
    9. Bruderer Enzler, Heidi & Diekmann, Andreas & Meyer, Reto, 2014. "Subjective discount rates in the general population and their predictive power for energy saving behavior," Energy Policy, Elsevier, vol. 65(C), pages 524-540.
    10. Luigi Ventura, 2003. "Direct Measures of Time Preference," The Economic and Social Review, Economic and Social Studies, vol. 34(3), pages 293–310.
    11. Arthur J. Robson & Hillard S. Kaplan, 2003. "The Evolution of Human Life Expectancy and Intelligence in Hunter-Gatherer Economies," American Economic Review, American Economic Association, vol. 93(1), pages 150-169, March.
    12. Wataru Johdo, 2013. "Does monetary expansion improve welfare under habit formation?," Economics Bulletin, AccessEcon, vol. 33(3), pages 1959-1968.
    13. Lahav, Eyal & Benzion, Uri & Shavit, Tal, 2010. "Subjective time discount rates among teenagers and adults: Evidence from Israel," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 458-465, August.
    14. Klaus Nowotny, 2010. "Risk Aversion, Time Preference and Cross-border Commuting and Migration Intentions," WIFO Working Papers 379, WIFO.
    15. Dahal, Arati & Fertig, Angela, 2013. "An econometric assessment of the effect of mental illness on household spending behavior," Journal of Economic Psychology, Elsevier, vol. 37(C), pages 18-33.
    16. Bernard M.S. van Praag & Adam S. Booij, 2003. "Risk Aversion and the Subjective Time Discount Rate: A Joint Approach," CESifo Working Paper Series 923, CESifo Group Munich.
    17. Junji Kageyama, 2011. "The intertemporal allocation of consumption, time preference, and life-history strategies," Journal of Bioeconomics, Springer, vol. 13(2), pages 79-95, July.
    18. Smith, Patricia K. & Bogin, Barry & Bishai, David, 2005. "Are time preference and body mass index associated?: Evidence from the National Longitudinal Survey of Youth," Economics & Human Biology, Elsevier, vol. 3(2), pages 259-270, July.

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