The Logical Consistency of Time Inconsistency: A Theory of Forward-Looking Behavior
AbstractThis paper argues that, to be forward-looking in a logically consistent sense, a decision maker must take account of his overall well-being, not just his instantaneous utility, in all future periods. However, such a decision-maker is necessarily time inconsistent. The paper explores the relationship between how a decision-maker discounts well-being and how he discounts instantaneous utility. It also provides simple axiomatizations of preferences that exhibit forward-looking behavior, including quasi-hyperbolic discounting (Phelps and Pollack (1968) ; Laibson (1997) ). Finally, the paper provides a rigorous way to think about welfare criteria in models with time inconsistent agents.
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Bibliographic InfoPaper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 1571.
Date of creation: 29 Oct 2013
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Postal: Center for Mathematical Studies in Economics and Management Science, Northwestern University, 580 Jacobs Center, 2001 Sheridan Road, Evanston, IL 60208-2014
Web page: http://www.kellogg.northwestern.edu/research/math/
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- cri - - - - - -
- JEL - Labor and Demographic Economics - - - - -
- Cla - Mathematical and Quantitative Methods - - - - -
- D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
- D60 - Microeconomics - - Welfare Economics - - - General
- D90 - Microeconomics - - Intertemporal Choice - - - General
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