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The Evolution of Time Preference with Aggregate Uncertainty

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  • Arthur J. Robson
  • Larry Samuelson

Abstract

We examine the evolutionary foundations of intertemporal preferences. When all the risk affecting survival and reproduction is idiosyncratic, evolution selects for agents who maximize the discounted sum of expected utility, discounting at the sum of the population growth rate and the mortality rate. Aggregate uncertainty concerning survival rates leads to discount rates that exceed the sum of population growth rate and death rate, and can push agents away from exponential discounting. (JEL D11, D81, D91)

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File URL: http://www.aeaweb.org/articles.php?doi=10.1257/aer.99.5.1925
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File URL: http://www.aeaweb.org/aer/data/dec09/20080116_app.pdf
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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 99 (2009)
Issue (Month): 5 (December)
Pages: 1925-53

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Handle: RePEc:aea:aecrev:v:99:y:2009:i:5:p:1925-53
Note: DOI: 10.1257/aer.99.5.1925
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Find related papers by JEL classification:
  • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
  • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
  • D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving

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  1. Robert H. Litzenberger & Cherukuri U. Rao, 1971. "Estimates of the Marginal Rate of Time Preference and Average Risk Aversion of Investors in Electric Utility Shares: 1960-66," Bell Journal of Economics, The RAND Corporation, vol. 2(1), pages 265-277, Spring.
  2. Partha Dasgupta & Eric Maskin, 2004. "Uncertainty and Hyperbolic Discounting," Economics Working Papers 0023, Institute for Advanced Study, School of Social Science.
  3. Lawrance, Emily C, 1991. "Poverty and the Rate of Time Preference: Evidence from Panel Data," Journal of Political Economy, University of Chicago Press, vol. 99(1), pages 54-77, February.
  4. Eric Bettinger & Robert Slonim, 2007. "Patience among children," Artefactual Field Experiments 00043, The Field Experiments Website.
  5. Rogers, Alan R, 1994. "Evolution of Time Preference by Natural Selection," American Economic Review, American Economic Association, vol. 84(3), pages 460-81, June.
  6. Martin L. Weitzman, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 703-724, September.
  7. Larry Samuelson & Arthur J. Robson, 2007. "The Evolution of Intertemporal Preferences," American Economic Review, American Economic Association, vol. 97(2), pages 496-500, May.
  8. William D. Nordhaus, 2007. "A Review of the Stern Review on the Economics of Climate Change," Journal of Economic Literature, American Economic Association, vol. 45(3), pages 686-702, September.
  9. Hansson, Ingemar & Stuart, Charles, 1990. "Malthusian Selection of Preferences," American Economic Review, American Economic Association, vol. 80(3), pages 529-44, June.
  10. Arthur J. Robson & Balazs Szentes, 2008. "Evolution of Time Preference by Natural Selection: Comment," American Economic Review, American Economic Association, vol. 98(3), pages 1178-88, June.
  11. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  12. Al-Najjar, Nabil Ibraheem, 1995. "Decomposition and Characterization of Risk with a Continuum of Random Variables," Econometrica, Econometric Society, vol. 63(5), pages 1195-1224, September.
  13. Michael Gurven & Hillard Kaplan, 2007. "Longevity Among Hunter- Gatherers: A Cross-Cultural Examination," Population and Development Review, The Population Council, Inc., vol. 33(2), pages 321-365.
  14. Menahem E. Yaari, 1965. "Uncertain Lifetime, Life Insurance, and the Theory of the Consumer," Review of Economic Studies, Oxford University Press, vol. 32(2), pages 137-150.
  15. David M. Bishai, 2004. "Does time preference change with age?," Journal of Population Economics, Springer;European Society for Population Economics, vol. 17(4), pages 583-602, December.
  16. Curry, Philip A., 2001. "Decision Making under Uncertainty and the Evolution of Interdependent Preferences," Journal of Economic Theory, Elsevier, vol. 98(2), pages 357-369, June.
  17. Warneryd, Karl, 2007. "Sexual reproduction and time-inconsistent preferences," Economics Letters, Elsevier, vol. 95(1), pages 14-16, April.
  18. Robson, Arthur J., 1996. "A Biological Basis for Expected and Non-expected Utility," Journal of Economic Theory, Elsevier, vol. 68(2), pages 397-424, February.
  19. 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.
  20. 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.
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Cited by:

  1. Ricardo Alonso & Isabelle Brocas & Juan D. Carrillo, 2014. "Resource allocation in the brain," LSE Research Online Documents on Economics 58649, London School of Economics and Political Science, LSE Library.
  2. Sanjay Jain & Sumon Majumdar & Sharun Mukand, 2014. "Walk the Line: Conflict, State Capacity and the Political Dynamics of Reform," CESifo Working Paper Series 4648, CESifo Group Munich.
  3. C.Y. Cyrus Chu & Hung-Ken Chien & Ronald D. Lee, 2008. "The Evolutionary Theory of Time Preferences and Intergenerational Transfers," NBER Working Papers 14185, National Bureau of Economic Research, Inc.
  4. Jeffery Flory & John List & Kenneth Leonard & Uri Gneezy, 2012. "Sex, competitiveness, and investment in offspring: On the origin of preferences," Artefactual Field Experiments 00072, The Field Experiments Website.
  5. Jason Collins & Boris Baer & Ernst Weber, 2015. "Sexual selection, conspicuous consumption and economic growth," Journal of Bioeconomics, Springer, vol. 17(2), pages 189-206, July.
  6. Frenkel, Sivan & Heller, Yuval & Teper, Roee, 2012. "Endowment as a blessing," MPRA Paper 39430, University Library of Munich, Germany, revised 30 Apr 2012.
  7. Junji Kageyama, 2011. "The intertemporal allocation of consumption, time preference, and life-history strategies," Journal of Bioeconomics, Springer, vol. 13(2), pages 79-95, July.
  8. Fabrizio Adriani & Silvia Sonderegger, 2014. "Evolution of similarity judgements in intertemporal choice," Discussion Papers 2014-06, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.

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