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Increasing elasticity of the value function in the Loewenstein-Prelec theory of intertemporal choice

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Author Info
Ali al-Nowaihi ()
Sanjit Dhami ()

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Abstract

In a critique of the Loewenstein and Prelec (1992) theory of intertemporal choice, al-Nowaihi and Dhami (2006) point out to four errors. One of the alleged errors was that the value function in prospect theory is decreasing. But it is in fact increasing. We provide a correction and a formal proof. As a corollary, we show that the elasticity of the value function is bounded between zero and one. Nevertheless, all the remaining points in al-Nowaihi and Dhami (2006) remain valid.

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File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp07-13.pdf
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Publisher Info
Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 07/13.

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Date of creation: Oct 2007
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Handle: RePEc:lec:leecon:07/13

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Related research
Keywords: Anomalies of the DU model; Intertemporal choice; Generalized hyperbolic discounting;

Find related papers by JEL classification:
C60 - Mathematical and Quantitative Methods - - Mathematical Methods and Programming - - - General
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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This page was last updated on 2009-12-16.

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