A note on the reward-loss duality in time consistent decisions
AbstractIndividuals choosing among payoffs available at different points in time are considered as rational if they are time consistent. This occurs when their plans of actions are effectively implemented. With time consistent decision makers, the paper points out an interesting dual behavior related to, symmetric, rewards and losses. In a simplest two payoffs context rationality implies opting for a late (earlier), higher (lower), reward and an earlier (delayed), lower (higher) loss. Since rational agents either choose the highest or the lowest available payoff, this raises the question as to whether dynamic rationality has to do with patience or payoff concern.
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Bibliographic InfoPaper provided by Department of Economic Policy, Finance and Development (DEPFID), University of Siena in its series Department of Economic Policy, Finance and Development (DEPFID) University of Siena with number 008.
Date of creation: Nov 2007
Date of revision:
rewards; losses; time consistency.;
Find related papers by JEL classification:
- D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-01-05 (All new papers)
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- Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
- Valeria Faralla & Francesca Benuzzi & Fausta Lui & Patrizia Baraldi & Paolo Nichelli & Nicola Dimitri, 2010. "Gains and Losses: A Common Neural Network for Economic Behaviour," Labsi Experimental Economics Laboratory University of Siena 033, University of Siena.
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