Heterogeneous impatience and dynamic inconsistency
It has been shown in the literature that if the individual consumers have constant but unequal time discount rates, then the representative consumer has discount rates that is a strictly decreasing function of time, just as is the case of hyperbolic discounting. No contribution, however, has so far established a general relationship between the degree of heterogeneity of individual consumers' subjective discount rates on the one hand and the degree of dynamic inconsistency of the representative consumer's discount rate function on the other. In this paper, we show that the more convex the cumulant generating function of the approximately wealth-weighted distribution of individual consumers' subjective discount rates is, the more dynamically inconsistent the representative consumer is in the sense of Prelec (2004), and vice versa. Applications to the term structure of interest rates are explored and the special case where the distributions of subjective discount rates are taken from an exponential family is investigated.
|Date of creation:||May 2012|
|Contact details of provider:|| Postal: 2-1 Naka, Kunitachi City, Tokyo 186-8603|
Web page: http://cis.ier.hit-u.ac.jp/
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Guenter Franke & Richard C. Stapleton & Marti G. Subrahmanyam, 1999.
"When are Options Overpriced? The Black-Scholes Model and Alternative Characterisations of the Pricing Kernel,"
CoFE Discussion Paper
99-01, Center of Finance and Econometrics, University of Konstanz.
- Guntar Franke & Richard C. Stapleton & Marti G. Subrahmanyam, 1999. "When are Options Overpriced? The Black-Scholes Model and Alternative Characterizations of the Pricing Kernel," New York University, Leonard N. Stern School Finance Department Working Paper Seires 99-003, New York University, Leonard N. Stern School of Business-.
- Martin L. Weitzman, 1998.
Harvard Institute of Economic Research Working Papers
1843, Harvard - Institute of Economic Research.
- Elyès Jouini & Clotilde Napp, 2007.
"Consensus Consumer and Intertemporal Asset Pricing with Heterogeneous Beliefs,"
Review of Economic Studies,
Oxford University Press, vol. 74(4), pages 1149-1174.
- Clotilde Napp & Elyès Jouini, 2007. "Consensus consumer and intertemporal asset pricing with heterogeneous beliefs," Post-Print halshs-00152348, HAL.
- Elyès Jouini & Clotilde Napp, 2003. "Consensus consumer and intertemporal asset pricing with heterogeneous beliefs," Finance 0312001, EconWPA.
- Christian Gollier & Richard Zeckhauser, 2005. "Aggregation of Heterogeneous Time Preferences," Journal of Political Economy, University of Chicago Press, vol. 113(4), pages 878-896, August.
- Drazen Prelec, 2004. "Decreasing Impatience: A Criterion for Non-stationary Time Preference and "Hyperbolic" Discounting," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(3), pages 511-532, October.
When requesting a correction, please mention this item's handle: RePEc:hit:cisdps:557. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Digital Resources Section, Hitotsubashi University Library)
If references are entirely missing, you can add them using this form.