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Sophistication drives higher growth than navïeté in the Ak model with hyperbolic discounting: An exhaustive numerical exploration

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  • Gómez, Manuel A.

Abstract

This paper examines the Ak endogenous growth model with naïve and sophisticated agents under hyperbolic discounting. The utility function is isoelastic, with an intertemporal elasticity of substitution less than one. We derive a simple condition to verify that the effective rate of time preference is lower — and, consequently, the growth rate is higher — when agents are sophisticated rather than naïve. An extensive numerical analysis suggests that this condition holds across the entire feasible parameter space.

Suggested Citation

  • Gómez, Manuel A., 2025. "Sophistication drives higher growth than navïeté in the Ak model with hyperbolic discounting: An exhaustive numerical exploration," Economics Letters, Elsevier, vol. 252(C).
    • Handle: RePEc:eee:ecolet:v:252:y:2025:i:c:s016517652500148x
    DOI: 10.1016/j.econlet.2025.112311
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    More about this item

    Keywords

    Endogenous growth; Hyperbolic discounting; Naïve consumer; Sophisticated consumer;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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