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Beyond discounting: the tradeoff model of intertemporal choice

  • Marc Scholten
  • Daniel Read
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    Research on intertemporal judgments and choices between a smaller-sooner and a larger-later outcome has revealed many anomalies to the discounted-utility model. Attempts to account for these anomalies within the discounting paradigm have resulted in convoluted and psychologically opaque models. We therefore develop a new model of intertemporal choice, the tradeoff model, in which choice results from a tradeoff between the perceived time difference (interval) and the perceived outcome difference (compensation). This model is both more parsimonious and more intuitive than any rival discounting model of comparable scope. Moreover, it accurately describes archival data as well as data from a new experiment.

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    Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 22710.

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    Length: 65 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:ehl:lserod:22710
    Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
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    12. Keller, L Robin & Strazzera, Elisabetta, 2002. " Examining Predictive Accuracy Among Discounting Models," Journal of Risk and Uncertainty, Springer, vol. 24(2), pages 143-60, March.
    13. repec:oup:qjecon:v:107:y:1992:i:2:p:573-97 is not listed on IDEAS
    14. Jonathan W. Leland, 2002. "Similarity Judgments and Anomalies in Intertemporal Choice," Economic Inquiry, Western Economic Association International, vol. 40(4), pages 574-581, October.
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    23. Ariel Rubinstein, 2003. ""Economics and Psychology"? The Case of Hyperbolic Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 44(4), pages 1207-1216, November.
    24. repec:oup:qjecon:v:106:y:1991:i:4:p:1039-61 is not listed on IDEAS
    25. George Loewenstein, 2000. "Emotions in Economic Theory and Economic Behavior," American Economic Review, American Economic Association, vol. 90(2), pages 426-432, May.
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