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Past and Future: Backward and Forward Discounting

Author

Listed:
  • Debraj Ray

    (NYU - New York University [New York] - NYU - NYU System, University of Warwick [Coventry])

  • Nikhil Vellodi

    (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Ruqu Wang

    (Zhejiang University, Queen's University [Kingston, Canada])

Abstract

We study a model of time preference in which both current consumption and the memory of past consumption enter "experienced utility"—or the felicity—of an individual. An individual derives overall utility from her own felicity and the anticipated felicities of future selves. These postulates permit an agent to anticipate future regret in current decisions, and generate a set of novel testable implications in line with empirical evidence. The model can be applied to disparate phenomena, including present bias, equilibrium savings behavior, anticipation of regret, and career concerns.

Suggested Citation

  • Debraj Ray & Nikhil Vellodi & Ruqu Wang, 2023. "Past and Future: Backward and Forward Discounting," PSE-Ecole d'économie de Paris (Postprint) halshs-04347029, HAL.
    • Handle: RePEc:hal:pseptp:halshs-04347029
    DOI: 10.1093/jeea/jvad036
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