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A simple explanation of some key time preference anomalies

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  • Bianjun Xia

Abstract

Individual time discounting behaviour experimentally exhibits important anomalies that are inconsistent with the standard discounted utility model. These include the time preference reversal characteristic of hyperbolic discounting, the magnitude effect and the extreme sign effect. I propose a simple explanation of discounting that accounts for these three anomalies simultaneously, within the context of the expected utility model with uncertainty, risk aversion, and preference for precautionary saving.

Suggested Citation

  • Bianjun Xia, 2011. "A simple explanation of some key time preference anomalies," Canadian Journal of Economics, Canadian Economics Association, vol. 44(2), pages 695-708, May.
  • Handle: RePEc:cje:issued:v:44:y:2011:i:2:p:695-708
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    Cited by:

    1. Orlando Gomes & Alexandra Ferreira-Lopes & Tiago Sequeira, 2014. "Exponential discounting bias," Journal of Economics, Springer, vol. 113(1), pages 31-57, September.

    More about this item

    JEL classification:

    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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