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An Explanation of Hyperbolic Marginal Utility from Money

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  • Arad, N.
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    Abstract

    "Hyperbolic discount functions are characterized by a relatively high discount rate over short horizons and a relatively low discount rate over long horizon" [Laibson 1997, p. 445]. In this theoretical note, we show that individuals hyperbolically discount marginal utility from money when they follow a cognitive procedure in which they believe that their wealth might increase or decrease in each future period under the constraint of a small-perceived probability that wealth will deteriorate below its current level.

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    Bibliographic Info

    Paper provided by Tel Aviv in its series Papers with number 2000-25.

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    Length: 15 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:fth:teavfo:2000-25

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    Postal: Israel TEL-AVIV UNIVERSITY, THE FOERDER INSTITUTE FOR ECONOMIC RESEARCH, RAMAT AVIV 69 978 TEL AVIV ISRAEL.
    Phone: 972-3-640-9255
    Fax: 972-3-640-5815
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    Web page: http://econ.tau.ac.il/research/foerder.asp
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    Keywords: DISCOUNT RATE ; MONEY ; WEALTH;

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    Cited by:
    1. Cruz Rambaud, Salvador & Muñoz Torrecillas, María José, 2007. "Obtención de la tasa social de descuento a partir de la tasa de fallo de una distribución estadística: Aplicación empírica/Obtaining the social discount rate from the hazard rate of a statistical," Estudios de Economía Aplicada, Estudios de Economía Aplicada, vol. 25, pages 49-82, Abril.

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