This file is part of IDEAS, which uses RePEc data


[ Papers | Articles | Software | Books | Chapters | Authors | Institutions | JEL Classification | NEP reports | Search | New papers by email | Author registration | Rankings | Volunteers | FAQ | Blog | Help! ]

Uncertainty and Hyperbolic Discounting

Author info | Abstract | Publisher info | Download info | Related research | Statistics
Author Info
Partha Dasgupta () (Department of Economics, Cambridge University)
Eric Maskin () (School of Social Science, Institute for Advanced Study)

Additional information is available for the following registered author(s):

Abstract

We propose an evolutionary explanation for the pattern of intertemporal preference reversals often ascribed to "hyperbolic discounting." We take the view that preferences—manifested, for example, in urges, cravings, and inclinations— are the outcome of evolutionary forces, and so will induce animals or humans to make survival-maximizing choices in "typical" decision problems. We show that if the typical problem involves payoffs whose realization times are uncertain, then optimal preferences give rise to relatively patient behavior when the time horizon is long but induce a switch to impatience when the horizon grows short. Such reversals do not entail dynamic inconsistency in typical decision problems; behavior there is optimal. However, if a decision-maker is confronted with a choice for which the realization-time uncertainty falls outside the evolutionary norm, her preferences may well prompt her to behave inconsistently. We argue that, if such a choice problem recurs, her evolutionarily endowed aability to learn will lead her to make self-commitments against these urges.

Download Info
To download:

If you experience problems downloading a file, check if you have the proper application to view it first. Information about this may be contained in the File-Format links below. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.sss.ias.edu/publications/papers/econpaper23.pdf
Our checks indicate that this address may not be valid because: 404 Not Found. If this is indeed the case, please notify (Nancy Cotterman)
File Format: application/pdf
File Function:
Download Restriction: no

Publisher Info
Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0023.

Download reference. The following formats are available: HTML (with abstract), plain text (with abstract), BibTeX, RIS (EndNote, RefMan, ProCite), ReDIF
Length: 21 pages
Date of creation: Nov 2004
Date of revision:
Publication status: Published in American Economic Review, vol. 95(4), September 2005, pp. 1290-1299
Handle: RePEc:ads:wpaper:0023

Contact details of provider:
Postal: Einstein Drive,Princeton, NJ 08540
Phone: 609-734-8250
Fax: 609-951-4457
Web page: http://www.sss.ias.edu/
More information through EDIRC

For technical questions regarding this item, or to correct its listing, contact: (Nancy Cotterman).

Related research
Keywords:

Other versions of this item:

Find related papers by JEL classification:
D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

References listed on IDEAS
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.:

  1. Weitzman, Martin L, 1979. "Optimal Search for the Best Alternative," Econometrica, Econometric Society, vol. 47(3), pages 641-54, May. [Downloadable!] (restricted)
    Other versions:
  2. Martin L. Weitzman, 2001. "Gamma Discounting," American Economic Review, American Economic Association, vol. 91(1), pages 260-271, March. [Downloadable!] (restricted)
    Other versions:
  3. Swinkels, Jeroen M. & Samuelson, Larry, 2006. "Information, evolution and utility," Theoretical Economics, Society for Economic Theory, vol. 1(1), pages 119-142, March. [Downloadable!]
  4. Rubinstein, Ariel, 2001. "A theorist's view of experiments," European Economic Review, Elsevier, vol. 45(4-6), pages 615-628, May. [Downloadable!] (restricted)
  5. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  6. Ted O'Donoghue & Matthew Rabin, 1999. "Doing It Now or Later," American Economic Review, American Economic Association, vol. 89(1), pages 103-124, March. [Downloadable!] (restricted)
  7. B. Douglas Bernheim & Jonathan Skinner & Steven Weinberg, 2001. "What Accounts for the Variation in Retirement Wealth among U.S. Households?," American Economic Review, American Economic Association, vol. 91(4), pages 832-857, September. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Anton Suvorov & Jeroen van de Ven, 2008. "Goal Setting as a Self-Regulation Mechanism," Working Papers w0122, Center for Economic and Financial Research (CEFIR). [Downloadable!]
  2. Karp, Larry & Tsur, Yacov, 2007. "Climate Policy When The Distant Future Matters: Catastrophic Events With Hyperbolic Discounting," Discussion Papers 7181, Hebrew University of Jerusalem, Department of Agricultural Economics and Management. [Downloadable!]
    Other versions:
  3. Partha Dasgupta, 2008. "Discounting climate change," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 141-169, December. [Downloadable!] (restricted)
  4. Kota Saito, 2009. "A Relationship between Risk and Time Preferences," Levine's Working Paper Archive 814577000000000269, David K. Levine. [Downloadable!]
  5. Trenton Smith & Christiana Stoddard & Michael G. Barnes, 2007. "Why the Poor Get Fat: Weight Gain and Economic Insecurity," Working Papers 2007-16, School of Economic Sciences, Washington State University. [Downloadable!]
    Other versions:
  6. Marco Casari, 2009. "Pre-commitment and flexibility in a time decision experiment," Journal of Risk and Uncertainty, Springer, vol. 38(2), pages 117-141, April. [Downloadable!] (restricted)
    Other versions:
  7. Stephen Satchell & Susan Thorp, 2008. "Discounting And Consumption Over An Uncertain Horizon: Draw-Down Plans For Family Trusts," CAMA Working Papers 2008-02, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
    Other versions:
  8. Svetlana Boyarchenko & Sergei Levendorskii, 2005. "Discount factors ex post and ex ante, and discounted utility anomalies," Microeconomics 0510013, EconWPA, revised 17 Nov 2005. [Downloadable!]
Statistics
Access and download statistics

Did you know? Citation analysis on IDEAS includes online papers that are freely accessible and whose text could be automatically analyzed, currently about 210000 papers.

This page was last updated on 2009-11-19.

This information is provided to you by IDEAS at the Department of Economics, College of Liberal Arts and Sciences, University of Connecticut using RePEc data on a server sponsored by the Society for Economic Dynamics.