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Identification of Dynamic Discrete Choice Models with Hyperbolic Discounting Using a Terminating Action

Author

Listed:
  • Chao Wang

    (Indiana University, Department of Economics)

  • Stefan Weiergraeber

    (Indiana University, Department of Economics)

  • Ruli Xiao

    (Indiana University, Department of Economics)

Abstract

We study the identification of dynamic discrete choice models with hyperbolic discounting using a terminating action. We provide novel identification results for both sophisticated and naive agents? discount factors and their utilities in a finite horizon framework under the assumption of a stationary flow utility. In contrast to existing identification strategies we do not require to observe the final period for the sophisticated agent. Moreover, we avoid normalizing the flow utility of a reference action for both the sophisticated and the naive agent. We propose two simple estimators and show that they perform well in simulations.

Suggested Citation

  • Chao Wang & Stefan Weiergraeber & Ruli Xiao, 2022. "Identification of Dynamic Discrete Choice Models with Hyperbolic Discounting Using a Terminating Action," CAEPR Working Papers 2022-010 Classification-C, Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington.
    • Handle: RePEc:inu:caeprp:2022010
    as

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    File URL: https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2022-010.pdf
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    References listed on IDEAS

    as
    1. An, Yonghong & Hu, Yingyao & Xiao, Ruli, 2021. "Dynamic decisions under subjective expectations: A structural analysis," Journal of Econometrics, Elsevier, vol. 222(1), pages 645-675.
    2. Hanming Fang & Yang Wang, 2015. "Estimating Dynamic Discrete Choice Models With Hyperbolic Discounting, With An Application To Mammography Decisions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56(2), pages 565-596, May.
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    6. Hanming Fang & Yang Wang, 2015. "Estimating Dynamic Discrete Choice Models With Hyperbolic Discounting, With An Application To Mammography Decisions," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 56, pages 565-596, May.
    7. Jaap H. Abbring & Øystein Daljord, 2020. "A Comment On “Estimating Dynamic Discrete Choice Models With Hyperbolic Discounting” By Hanming Fang And Yang Wang," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(2), pages 565-571, May.
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    Keywords

    hyperbolic discounting; dynamic discrete choice model; identification;
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