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A Vague Theory of Choice over Time

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  • Manzini, Paola

    ()
    (University of St. Andrews)

  • Mariotti, Marco

    ()
    (University of St. Andrews)

Abstract

We propose a novel approach to modelling time preferences, based on a cognitive shortcoming of human decision makers: the perception of future events becomes increasingly ‘blurred’ as the events are pushed further in time. We axiomatise a class of preference representations which can be specialised to rationalise ‘anomalies’ such as preference reversals and cyclical preferences. We also present an application to a form of time inconsistency which we dub ‘the now or never fallacy’.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 1228.

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Length: 29 pages
Date of creation: Jul 2004
Date of revision:
Publication status: published in:B.E. Journal of Theoretical Economics: Advances in Theoretical Economics , 2006, 6 (1), 1265-1265
Handle: RePEc:iza:izadps:dp1228

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Keywords: hyperbolic discounting; time preferences; intransitive preferences; preference reversal; cycles;

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References

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  1. Ted O'Donoghue & Matthew Rabin, 1996. "Doing It Now or Later," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1172, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Ted O' Donoghue & Matthew Rabin, 2001. "Choice and Procrastination," Microeconomics, EconWPA 0012002, EconWPA.
  3. Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 67(3), pages 529-44, July.
  4. Gilboa, Itzhak & Lapson, Robert, 1995. "Aggregation of Semiorders: Intransitive Indifference Makes a Difference," Economic Theory, Springer, Springer, vol. 5(1), pages 109-26, January.
  5. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 107(2), pages 573-97, May.
  6. Tversky, Amos & Slovic, Paul & Kahneman, Daniel, 1990. "The Causes of Preference Reversal," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 204-17, March.
  7. Fishburn, Peter C & Rubinstein, Ariel, 1982. "Time Preference," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 23(3), pages 677-94, October.
  8. Ariel Rubinstein, 2000. "Is It 'Economics and Psychology?' : The Case of Hyperbolic Discounting," Levine's Working Paper Archive 7640, David K. Levine.
  9. Rubinstein, Ariel, 2001. "A theorist's view of experiments," European Economic Review, Elsevier, Elsevier, vol. 45(4-6), pages 615-628, May.
  10. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1403-1435, November.
  11. H. M. Shefrin & Richard Thaler, 1977. "An Economic Theory of Self-Control," NBER Working Papers 0208, National Bureau of Economic Research, Inc.
  12. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 112(2), pages 443-77, May.
  13. Read, Daniel, 2001. " Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, Springer, vol. 23(1), pages 5-32, July.
  14. Philippe Jehiel & Andrew Lilico, 2006. "Smoking today or stopping tomorrow: A limited foresight perspective," Levine's Bibliography 506439000000000198, UCLA Department of Economics.
  15. Efe A Ok & Yusufcan Masatlioglu, 2003. "A General Theory of Time Preferences," Levine's Bibliography 234936000000000089, UCLA Department of Economics.
  16. JosÊ RamÕn Uriarte, 1999. "Decision-making under risk: Editing procedures based on correlated similarities, and preference overdetermination," Review of Economic Design, Springer, Springer, vol. 4(1), pages 1-12.
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Citations

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Cited by:
  1. Manzini, Paola & Mariotti, Marco, 2007. "Choice Over Time," IZA Discussion Papers 2993, Institute for the Study of Labor (IZA).
  2. Wong, Wei-Kang, 2008. "How much time-inconsistency is there and does it matter? Evidence on self-awareness, size, and effects," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 68(3-4), pages 645-656, December.
  3. Paola Manzini & Marco Mariotti & Luigi Mittone, 2006. "Choosing Monetary Sequences: Theory and Experimental Evidence," CEEL Working Papers, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia 0601, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  4. Boyarchenko, Svetlana & Levendorskii, Sergei, 2010. "Discounting when income is stochastic and climate change policies," MPRA Paper 27998, University Library of Munich, Germany.
  5. Manzini, Paola & Mariotti, Marco, 2004. "Rationalizing Boundedly Rational Choice: Sequential Rationalizability and Rational Shortlist Methods," IZA Discussion Papers 1239, Institute for the Study of Labor (IZA).
  6. Paola Manzini & Marco Mariotti, 2004. "Rationalizing Boundedly Rational Choice," Microeconomics, EconWPA 0407005, EconWPA, revised 21 Jul 2005.
  7. Efe A Ok & Yusufcan Masatlioglu, 2003. "A General Theory of Time Preferences," Levine's Bibliography 234936000000000089, UCLA Department of Economics.
  8. Svetlana Boyarchenko & Sergei Levendorskii, 2005. "Discount factors ex post and ex ante, and discounted utility anomalies," Microeconomics, EconWPA 0510013, EconWPA, revised 17 Nov 2005.
  9. Ali al-Nowaihi & Sanjit Dhami, 2008. "A value function that explains the magnitude and sign effects," Discussion Papers in Economics, Department of Economics, University of Leicester 08/31, Department of Economics, University of Leicester.

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