An Explanation of Hyperbolic Marginal Utility from Money
"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.
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|Date of creation:||2000|
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