Hyperbolic discounting may be time consistent
Using dynamic programming methodology, the paper analyzes the most general conditions for an additive utility functional to represent time consistent preferences. It challenges the conventional wisdom of the domain, which, following Strotz(1956), assume that only exponential discounting is compatible with time consistent behavior. The paper gives some examples of special time consistent hyperbolic discount functions and also discuss the relation between time consistency and stationarity.
Volume (Year): 29 (2009)
Issue (Month): 4 ()
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References listed on IDEAS
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