Exponential Discounting Bias
AbstractWe address intertemporal utility maximization under a general discount function that nests the exponential discounting and the quasi-hyperbolic discounting cases as particular specifi?cations. The suggested framework intends to capture one important anomaly typically found when addressing the way agents discount the future, namely the evidence pointing to the prevalence of decreasing impatience. The referred anomaly can be perceived as a bias relatively to what would be a benchmark exponential discounting setting, and is modeled as such. The general discounting framework is used to address a standard optimal growth model in discrete time. Transitional dynamics and stability properties of the corresponding dynamic setup are studied. An extension of the standard growth model to the case of habit persistence is also considered.
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Bibliographic InfoPaper provided by ISCTE-IUL, Business Research Unit (BRU-IUL) in its series Working Papers Series 2 with number 12-05.
Date of creation: 15 Jul 2012
Date of revision:
Intertemporal Preferences; Exponential Discounting; Quasi-hyperbolic Discounting; Optimal Growth; Habit Persistence; Transitional Dynamics;
Find related papers by JEL classification:
- C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-08-23 (All new papers)
- NEP-DGE-2012-08-23 (Dynamic General Equilibrium)
- NEP-MIC-2012-08-23 (Microeconomics)
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