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Consumption and Risk with hyperbolic discounting

  • Gong, Liutang
  • Smith, William
  • Zou, Heng-fu

Hyperbolic discounting is not observationally equivalent to exponential discounting. It is always possible to calibrate an exponential model so that it predicts the same level of consumption as a hyperbolic model. However, the two models have radically different comparative statics.

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File URL: http://www.sciencedirect.com/science/article/B6V84-4NK46WH-7/2/223138ce163c8df8cd9571190be2292d
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 96 (2007)
Issue (Month): 2 (August)
Pages: 153-160

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Handle: RePEc:eee:ecolet:v:96:y:2007:i:2:p:153-160
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  1. Robert J. Barro, 1999. "Ramsey Meets Laibson In The Neoclassical Growth Model," The Quarterly Journal of Economics, MIT Press, vol. 114(4), pages 1125-1152, November.
  2. Per Krusell & Anthony A Smith, Jr., 2001. "Consumption Savings Decisions with Quasi-Geometric Discounting," Levine's Working Paper Archive 625018000000000251, David K. Levine.
  3. Christopher Harris & David Laibson, 1999. "Dynamic Choices of Hyperbolic Consumers," Harvard Institute of Economic Research Working Papers 1886, Harvard - Institute of Economic Research.
  4. Faruk Gul & Wolfgang Pesendorfer, 2001. "Temptation and Self-Control," Econometrica, Econometric Society, vol. 69(6), pages 1403-1435, November.
  5. R. C. Merton, 1970. "Optimum Consumption and Portfolio Rules in a Continuous-time Model," Working papers 58, Massachusetts Institute of Technology (MIT), Department of Economics.
  6. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
  7. Erzo G. J. Luttmer & Thomas Mariotti, 2003. "Subjective Discounting in an Exchange Economy," Journal of Political Economy, University of Chicago Press, vol. 111(5), pages 959-989, October.
  8. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
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