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An Investigation of Time Consistency for Subjective Discontinued Utility

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A well-known common agreement in decision theory is that only exponential decision makers are time consistent i.e. with the mere passage of time, future choices must not contradict the initial choice. Building on this result, a large range of works has studied time inconsistency as a direct application of hyperbolic discounting. These articles share the common objective time assumption under which decision makers have a perfect perception of future periods. This paper firstly highlights that, when no further condition than separability is mentioned, any discount mechanism is compatible with time consistency. Then, we investigate time consistency assuming that individual time perception may be submitted to time distortion. In particular, an axiomatic discounting model called Subjective Discounted Utility (SDU) is provided to illustrate how hyperbolic decision makers may be time consistent.

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File URL: http://www.amse-aixmarseille.fr/sites/default/files/_dt/2012/wp_2012_-_nr_10.pdf
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Paper provided by Aix-Marseille School of Economics, Marseille, France in its series AMSE Working Papers with number 1210.

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Length: 26 pages
Date of creation: Jan 2012
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Handle: RePEc:aim:wpaimx:1210

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Web page: http://www.amse-aixmarseille.fr/en
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Keywords: Discounting; Time Distance; Time Consistency; Separable Preferences.;

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  1. Harvey, Charles M., 1994. "The reasonableness of non-constant discounting," Journal of Public Economics, Elsevier, vol. 53(1), pages 31-51, January.
  2. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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  7. 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.
  8. Gilboa, Itzhak, 1989. "Expectation and Variation in Multi-period Decisions," Econometrica, Econometric Society, vol. 57(5), pages 1153-69, September.
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  11. Nicolas Drouhin, 2009. "Hyperbolic discounting may be time consistent," Economics Bulletin, AccessEcon, vol. 29(4), pages 2549-2555.
  12. André Lapied & Olivier Renault, 2012. "A subjective discounted utility model," Economics Bulletin, AccessEcon, vol. 32(2), pages 1171-1179.
  13. Drazen Prelec, 2004. "Decreasing Impatience: A Criterion for Non-stationary Time Preference and "Hyperbolic" Discounting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 511-532, October.
  14. Burness, H Stuart, 1976. "On the Role of Separability Assumptions in Determining Impatience Implications," Econometrica, Econometric Society, vol. 44(1), pages 67-78, January.
  15. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
  16. Bleichrodt, Han & Rohde, Kirsten I.M. & Wakker, Peter P., 2009. "Non-hyperbolic time inconsistency," Games and Economic Behavior, Elsevier, vol. 66(1), pages 27-38, May.
  17. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  18. George Loewenstein & Richard H Thaler, 2003. "Anomalies: Intertemporal Choice," Levine's Working Paper Archive 618897000000000784, David K. Levine.
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