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An Explanation of Hyperbolic Marginal Utility from Money

Author

Listed:
  • Arad, N.

Abstract

"Hyperbolic discount functions are characterized by a relatively high discount rate over short horizons and a relatively low discount rate over long horizon" [Laibson 1997, p. 445]. In this theoretical note, we show that individuals hyperbolically discount marginal utility from money when they follow a cognitive procedure in which they believe that their wealth might increase or decrease in each future period under the constraint of a small-perceived probability that wealth will deteriorate below its current level.

Suggested Citation

  • Arad, N., 2000. "An Explanation of Hyperbolic Marginal Utility from Money," Papers 2000-25, Tel Aviv.
    • Handle: RePEc:fth:teavfo:2000-25
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    Cited by:

    1. Cruz Rambaud, Salvador & Muñoz Torrecillas, María José, 2007. "Obtención de la tasa social de descuento a partir de la tasa de fallo de una distribución estadística: Aplicación empírica/Obtaining the social discount rate from the hazard rate of a statistical dist," Estudios de Economia Aplicada, Estudios de Economia Aplicada, vol. 25, pages 49-82, Abril.

    More about this item

    Keywords

    DISCOUNT RATE ; MONEY ; WEALTH;
    All these keywords.

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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