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Beyond discounting: the tradeoff model of intertemporal choice

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  • Marc Scholten
  • Daniel Read
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    Abstract

    Research on intertemporal judgments and choices between a smaller-sooner and a larger-later outcome has revealed many anomalies to the discounted-utility model. Attempts to account for these anomalies within the discounting paradigm have resulted in convoluted and psychologically opaque models. We therefore develop a new model of intertemporal choice, the tradeoff model, in which choice results from a tradeoff between the perceived time difference (interval) and the perceived outcome difference (compensation). This model is both more parsimonious and more intuitive than any rival discounting model of comparable scope. Moreover, it accurately describes archival data as well as data from a new experiment.

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    File URL: http://eprints.lse.ac.uk/22710/
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    Bibliographic Info

    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 22710.

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    Length: 65 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:ehl:lserod:22710

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    1. Ted O'Donoghue and Matthew Rabin ., 1997. "Doing It Now or Later," Economics Working Papers 97-253, University of California at Berkeley.
    2. Marc Scholten & Daniel Read, 2006. "Discounting by Intervals: A Generalized Model of Intertemporal Choice," Management Science, INFORMS, vol. 52(9), pages 1424-1436, September.
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    22. Marjorie K. Shelley, 1993. "Outcome Signs, Question Frames and Discount Rates," Management Science, INFORMS, vol. 39(7), pages 806-815, July.
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