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Consumption and Risk with hyperbolic discounting

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Author Info

  • Liutang Gong

    (University of Beijing)

  • William Smith

    (Department of Economics, Fogelman)

  • Heng-fu Zou

    (University of Beijing
    World Bank)

Abstract

Hyperbolic discounting is not observationally equivalent to exponential discounting. It is always possible to calibrate an exponential model so that it predicts the same level of consumption as a hyperbolic model. However, the two models have radically different comparative statics.

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Bibliographic Info

Paper provided by China Economics and Management Academy, Central University of Finance and Economics in its series CEMA Working Papers with number 491.

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Length: 8 pages
Date of creation: 2007
Date of revision:
Publication status: Published in Economics Letters, Volume 96, Issue 2, August 2007, Pages 153-160
Handle: RePEc:cuf:wpaper:491

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Web page: http://cema.cufe.edu.cn/
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Related research

Keywords: Consumption; Uncertainty; Hyperbolic discounting;

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References

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  1. Krusell, Per & Smith Jr., Anthony A, 2001. "Consumption-Savings Decisions with Quasi-Geometric Discounting," CEPR Discussion Papers 2651, C.E.P.R. Discussion Papers.
  2. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  3. Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
  4. Robert J. Barro, 1999. "Ramsey Meets Laibson In The Neoclassical Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1125-1152, November.
  5. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  6. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  7. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  8. Erzo G. J. Luttmer & Thomas Mariotti, 2003. "Subjective Discounting in an Exchange Economy," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 959-989, October.
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Citations

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Cited by:
  1. Liutang Gong & William Smith & Heng-fu Zou, 2007. "Asset Prices and Hyperbolic Discounting," Annals of Economics and Finance, Society for AEF, vol. 8(2), pages 397-414, November.
  2. Y. Hossein Farzin & Ronald Wendner, 2013. "Saving Rate Dynamics in the Neoclassical Growth Model – Hyperbolic Discounting and Observational Equivalence," Working Papers 2013.42, Fondazione Eni Enrico Mattei.
  3. Orlando Gomes & Alexandra Ferreira-Lopes & Tiago Neves Sequeira, 2012. "Exponential Discounting Bias," Working Papers Series 2 12-05, ISCTE-IUL, Business Research Unit (BRU-IUL).
  4. Amanda King & John King, 2011. "Golden eggs versus plastic eggs: hyperbolic preferences and the persistence of debit," Journal of Economics and Finance, Springer, vol. 35(1), pages 93-103, January.
  5. Greene, David L., 2011. "Uncertainty, loss aversion, and markets for energy efficiency," Energy Economics, Elsevier, vol. 33(4), pages 608-616, July.
  6. Pérez Kakabadse, Alonso & Palacios Huerta, Ignacio, 2013. "Consumption and portfolio rules whit stochastic hyperbolic discounting," IKERLANAK Ikerlanak;2013-72, Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I.

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