Subadditivity, patience, and utility: The effects of dividing time intervals
Previous work has demonstrated that time discounting is subadditive: individuals exhibit more impatience evaluating a delay as divided into sub-intervals. This paper argues that subdivision affects both components of intertemporal choice, the utility function as well as the intertemporal discount function. In my first experiment, I demonstrate that differential concavity of utility for gains and convexity for losses implies that the discounting of losses is even more subadditive than the discounting of gains. Individuals display even more relative impatience over divided time intervals for negative amounts of money than for positive amounts of money. My second experiment utilizes alternative elicitation methods, which impose an intertemporal status quo, to highlight these utility effects. Subadditivity is stronger when delaying an early gain than for hastening a later gain. The reverse pattern holds for losses; discounting is more subadditive when hastening a later loss than for delaying an earlier loss.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Read, Daniel & Roelofsma, Peter H. M. P., 2003. "Subadditive versus hyperbolic discounting: A comparison of choice and matching," Organizational Behavior and Human Decision Processes, Elsevier, vol. 91(2), pages 140-153, July.
- Read, Daniel, 2001. "Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, vol. 23(1), pages 5-32, July.
- Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer, vol. 2(2), pages 107-127, December.
- 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.
- Kahneman, Daniel & Knetsch, Jack L., 1992. "Valuing public goods: The purchase of moral satisfaction," Journal of Environmental Economics and Management, Elsevier, vol. 22(1), pages 57-70, January.
- Starmer, Chris & Sugden, Robert, 1993. "Testing for Juxtaposition and Event-Splitting Effects," Journal of Risk and Uncertainty, Springer, vol. 6(3), pages 235-54, June.
- Kirby, Kris N. & Marakovic, Nino N., 1995. "Modeling Myopic Decisions: Evidence for Hyperbolic Delay-Discounting within Subjects and Amounts," Organizational Behavior and Human Decision Processes, Elsevier, vol. 64(1), pages 22-30, October.
- Marc Scholten & Daniel Read, 2006. "Discounting by Intervals: A Generalized Model of Intertemporal Choice," Management Science, INFORMS, vol. 52(9), pages 1424-1436, September.
- Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
- Pennings, J.M.E. & Smidts, A., 2002.
"The Shape of Utility Functions and Organizational Behavior,"
ERIM Report Series Research in Management
ERS-2002-18-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam.
- Joost M. E. Pennings & Ale Smidts, 2003. "The Shape of Utility Functions and Organizational Behavior," Management Science, INFORMS, vol. 49(9), pages 1251-1263, September.
- Uri Benzion & Amnon Rapoport & Joseph Yagil, 1989. "Discount Rates Inferred from Decisions: An Experimental Study," Management Science, INFORMS, vol. 35(3), pages 270-284, March.
- Marjorie K. Shelley, 1993. "Outcome Signs, Question Frames and Discount Rates," Management Science, INFORMS, vol. 39(7), pages 806-815, July.
- Bateman, Ian J, et al, 1997. "Does Part-Whole Bias Exist? An Experimental Investigation," Economic Journal, Royal Economic Society, vol. 107(441), pages 322-32, March.
- Imran S. Currim & Rakesh K. Sarin, 1989. "Prospect Versus Utility," Management Science, INFORMS, vol. 35(1), pages 22-41, January.
- George F. Loewenstein, 1988. "Frames of Mind in Intertemporal Choice," Management Science, INFORMS, vol. 34(2), pages 200-214, February.
- George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 573-597.
- Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
When requesting a correction, please mention this item's handle: RePEc:eee:jeborg:v:76:y:2010:i:2:p:325-337. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Shamier, Wendy)
If references are entirely missing, you can add them using this form.