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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- 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.
- David Laibson, 1997.
"Golden Eggs and Hyperbolic Discounting,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 112(2), pages 443-478.
- H. Stuart Burness, 1976. "A Note on Consistent Naive Intertemporal Decision Making and an Application to the Case of Uncertain Lifetime," Review of Economic Studies, Oxford University Press, vol. 43(3), pages 547-549.
- Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
- Christopher Harris & David Laibson, 1999.
"Dynamic Choices of Hyperbolic Consumers,"
Harvard Institute of Economic Research Working Papers
1886, Harvard - Institute of Economic Research.
- Salanie, Francois & Treich, Nicolas, 2006. "Over-savings and hyperbolic discounting," European Economic Review, Elsevier, vol. 50(6), pages 1557-1570, August.
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