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Discounting by Intervals: A Generalized Model of Intertemporal Choice

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  • Marc Scholten

    (Department of Social and Organizational Psychology, Instituto Superior de Psicologia Aplicada, Rua Jardim do Tabaco 34, 1149-041 Lisboa, Portugal)

  • Daniel Read

    (Durham Business School, Mill Hill Lane, Durham DH1 3LB, United Kingdom)

Abstract

According to most models of intertemporal choice, an agent's discount rate is a function of how far the outcomes are removed from the present, and nothing else. This view has been challenged by recent studies, which show that discount rates tend to be higher the closer the outcomes are to one another (subadditive discounting) and that this can give rise to intransitive intertemporal choice. We develop and test a generalized model of intertemporal choice, the Discounting By Intervals (DBI) model, according to which the discount rate is a function of both how far outcomes are removed from the present and how far the outcomes are removed from one another. The model addresses past challenges to other models, most of which it includes as special cases, as well as the new challenges presented in this paper: Our studies show that when the interval between outcomes is very short, discount rate tends to increase with interval length (superadditive discounting). In the discussion we place our model and evidence in a broader theoretical context.

Suggested Citation

  • Marc Scholten & Daniel Read, 2006. "Discounting by Intervals: A Generalized Model of Intertemporal Choice," Management Science, INFORMS, vol. 52(9), pages 1424-1436, September.
    • Handle: RePEc:inm:ormnsc:v:52:y:2006:i:9:p:1424-1436
    DOI: 10.1287/mnsc.1060.0534
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    References listed on IDEAS

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