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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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File URL: http://down.aefweb.net/WorkingPapers/w491.pdf
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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. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
  2. 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.
  3. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  4. W. Pesendorfer & F. Gul, 1999. "Temptation and Self-Control," Princeton Economic Theory Papers 99f1, Economics Department, Princeton University.
  5. Per Krusell & Anthony A. Smith, Jr., . "Consumption-Savings Decisions with Quasi-Geometric Discounting," GSIA Working Papers 2001-05, Carnegie Mellon University, Tepper School of Business.
  6. 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.
  7. 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.
  8. 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.
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Citations

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Cited by:
  1. Greene, David L., 2011. "Uncertainty, loss aversion, and markets for energy efficiency," Energy Economics, Elsevier, vol. 33(4), pages 608-616, July.
  2. Y. Hossein Farzin & Ronald Wendner, 2013. "Saving Rate Dynamics in the Neoclassical Growth Model — Hyperbolic Discounting and Observational Equivalence," Graz Economics Papers 2013-05, University of Graz, Department of Economics.
  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. 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.
  5. 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.
  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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