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Time Discounting and Time Consistency

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  • Nicola Dimitri

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    Abstract

    In the economic literature the most widely used type of additive time discounting is Exponential Discounting. Recent work however casts doubts on its ability in explaining how individuals effectively choose. In particular a more general form of discounting that gained importance, in both applied and theoretical work, is Hyperbolic Discounting which captures well phenomena such as procrastination and addiction. An important issue related to the additive form assumed for discounting is that time consistent preferences are the case only with Exponential Discounting. This paper shows that forms of Hyperbolic Discounting, in particular close to the so called Quasi-Hyperbolic model, could also be characterized in terms of dynamically consistent choices when individuals discount the welfare of future selves as well as their payoffs.

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    File URL: http://www.econ-pol.unisi.it/quaderni/456.pdf
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    Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 456.

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    Date of creation: Jul 2005
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    Handle: RePEc:usi:wpaper:456

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    1. Sáez-Martí, María & Weibull, Jörgen W., 2002. "Discounting and Future Selves," Working Paper Series 575, Research Institute of Industrial Economics.
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