Rule-Rationality and the Evolutionary Foundations of Hyperbolic Discounting
AbstractRecent studies involving intertemporal choice have prompted many economists to abandon the classical exponential discount utility function in favor of one characterized by hyperbolic discounting. Hyperbolic discounting, however, implies a reversal of preferences over time that is often described as dynamically inconsistent and ultimately irrational. We analyze hyperbolic discounting and its characteristic preference reversal in the context of rule-rationality, an evolutionary approach to rationality that proposes that people do not maximize utility in each of their acts; rather, they adopt rules of behavior that maximize utility in the aggregate, over all decisions to which an adopted rule applies. In this sense, people maximize over rules rather than acts. Rule-rationality provides a framework through which we may examine the rational basis for hyperbolic discounting in fundamental terms, and in terms of its evolutionary foundations. We conclude that although aspects of hyperbolic discounting may contain a certain destructive potential, it is likely that its evolutionary foundations are sound -- and its application may well be as justified and rational today as it was for our foraging ancestors.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by The Center for the Study of Rationality, Hebrew University, Jerusalem in its series Discussion Paper Series with number dp513.
Length: 17 pages
Date of creation: Jun 2009
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-03 (All new papers)
- NEP-CBE-2009-07-03 (Cognitive & Behavioural Economics)
- NEP-EVO-2009-07-03 (Evolutionary Economics)
- NEP-HPE-2009-07-03 (History & Philosophy of Economics)
- NEP-NEU-2009-07-03 (Neuroeconomics)
- NEP-UPT-2009-07-03 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Ted O'Donoghue and Matthew Rabin ., 1997.
"Doing It Now or Later,"
Economics Working Papers
97-253, University of California at Berkeley.
- O'Donoghue, Ted & Rabin, Matthew, 1997. "Doing It Now or Later," Department of Economics, Working Paper Series qt7t44m5b0, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
- Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November.
- Robert J. Aumann, 2008. "Rule-Rationality versus Act-Rationality," Discussion Paper Series dp497, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Ariel Rubinstein, 2006.
"Dilemmas of an Economic Theorist,"
Econometric Society, vol. 74(4), pages 865-883, 07.
- Ariel Rubinstein, 2004. "Dilemmas of an Economic Theorist," Econometric Society 2004 North American Summer Meetings 661, Econometric Society.
- Ariel Rubinstein, 2004. "Dilemmas of An Economic Theorist," Econometric Society 2004 Australasian Meetings 354, Econometric Society.
- Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ilan Nehama).
If references are entirely missing, you can add them using this form.