We develop a general theory of intertemporal choice: the reference-time theory, RT. RT is a synthesis of ideas from the hyperbolic model and subadditivity of time discounting. These models are extended to allow for a reference point for time as well as wealth. RT is able to account for all the 6 main anomalies of time discounting: gain-loss asymmetry, magnitude effect, common difference effect, delay-speedup asymmetry, apparent intransitivity of time preferences, and non-additivity of time discounting. We provide a class of utility functions compatible with RT. We show how RT can be extended to incorporate uncertainty and attribute models of intertemporal choice.
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Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number
08/34.
Length: Date of creation: Sep 2008 Date of revision: Handle: RePEc:lec:leecon:08/34
Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK Phone: +44 (0)116 252 2887 Fax: +44 (0)116 252 2908 Email: Web page: http://www.le.ac.uk/economics/
References listed on IDEAS 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.:
Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008.
"Eliciting Risk and Time Preferences,"
Econometrica,
Econometric Society, vol. 76(3), pages 583-618, 05.
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