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The Hyperbolic Factor: a Measure of Decreasing Impatience

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Author Info
Rohde,Kirsten I.M. (METEOR)

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Abstract

Many studies have found that discounting is hyperbolic rather than constant. Hyperbolicdiscounting is becoming increasingly popular in economic applications. Most studies thatprovide evidence in favor of hyperbolic discounting either are merely qualitative or theydepend on assumptions about, or parametric fittings of, utility functions. This paper provides a quantitative measure for the degree of deviation from stationarity that can overcome the problems mentioned. This measure, the hyperbolic factor, can easily be calculated from data and does not require knowledge of the utility function. Moreover, it provides simple preference foundations of the most popular discount functions. Thus, the hyperbolic factor provides an easy tool for theoretical preference foundations, critical empirical tests, and quantitative measurements of hyperbolic discounting.

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Paper provided by Maastricht : METEOR, Maastricht Research School of Economics of Technology and Organization in its series Research Memoranda with number 044.

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Date of creation: 2005
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Handle: RePEc:dgr:umamet:2005044

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Keywords: Economics ;

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  1. Fishburn, Peter C & Rubinstein, Ariel, 1982. "Time Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 677-94, October. [Downloadable!] (restricted)
  2. Kirby, Kris N. & Marakovic, Nino N., 1995. "Modeling Myopic Decisions: Evidence for Hyperbolic Delay-Discounting within Subjects and Amounts," Organizational Behavior and Human Decision Processes, Elsevier, vol. 64(1), pages 22-30, October. [Downloadable!] (restricted)
  3. 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. [Downloadable!] (restricted)
  4. Richard H. Thaler & Shlomo Benartzi, 2004. "Save More Tomorrow (TM): Using Behavioral Economics to Increase Employee Saving," Journal of Political Economy, University of Chicago Press, vol. 112(S1), pages S164-S187, February. [Downloadable!] (restricted)
  5. Drazen Prelec, 2004. "Decreasing Impatience: A Criterion for Non-stationary Time Preference and "Hyperbolic" Discounting," Scandinavian Journal of Economics, Blackwell Publishing, vol. 106(3), pages 511-532, October. [Downloadable!] (restricted)
  6. George A. Akerlof, 2002. "Behavioral Macroeconomics and Macroeconomic Behavior," American Economic Review, American Economic Association, vol. 92(3), pages 411-433, June. [Downloadable!]
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  7. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  8. 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. [Downloadable!] (restricted)
  9. 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)
  10. 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. [Downloadable!] (restricted)
  11. Per Krusell & Anthony A. Smith, Jr., 2003. "Consumption--Savings Decisions with Quasi--Geometric Discounting," Econometrica, Econometric Society, vol. 71(1), pages 365-375, January. [Downloadable!] (restricted)
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  12. Harris, Christopher & Laibson, David, 2001. "Dynamic Choices of Hyperbolic Consumers," Econometrica, Econometric Society, vol. 69(4), pages 935-57, July.
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