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A Note On The Loewenstein-Prelec Theory Of Intertemporal Choice

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  • Ali al-Nowaihi
  • Sanjit Dhami

Abstract

In one of the major contributions to behavioral economics, Loewenstein and Prelec (1992) set the foundations for the behavioral approach to decision making over time. We correct a number of errors in Loewenstein and Prelec (1992). Furthermore, we provide a correct, more direct and simpler derivation of their generalized hyperbolic discounting formula that has formed the basis of much recent work on temporal choice.

Suggested Citation

  • Ali al-Nowaihi & Sanjit Dhami, 2005. "A Note On The Loewenstein-Prelec Theory Of Intertemporal Choice," Discussion Papers in Economics 05/18, Division of Economics, School of Business, University of Leicester.
    • Handle: RePEc:lec:leecon:05/18
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    References listed on IDEAS

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    1. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    2. E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 35(2), pages 185-199.
    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
    5. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 573-597.
    6. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(2), pages 443-478.
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    Citations

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    Cited by:

    1. Nina Anchugina & Matthew Ryan & Arkadii Slinko, 2016. "Aggregating time preferences with decreasing impatience," Papers 1604.01819, arXiv.org.
    2. Ali al-Nowaihi & Sanjit Dhami, 2018. "Foundations for Intertemporal Choice," CESifo Working Paper Series 6913, CESifo.
    3. Ali al-Nowaihi & Sanjit Dhami, 2007. "Increasing elasticity of the value function in the Loewenstein-Prelec theory of intertemporal choice," Discussion Papers in Economics 07/13, Division of Economics, School of Business, University of Leicester.
    4. Pushpa, Rathie & Carlos, Radavelli & Sergio, Da Silva, 2006. "Sharpening Intertemporal Prospect Theory," MPRA Paper 1849, University Library of Munich, Germany.
    5. Anchugina, Nina & Ryan, Matthew & Slinko, Arkadii, 2017. "Hyperbolic discounting of the far-distant future," Economics Letters, Elsevier, vol. 155(C), pages 140-143.
    6. Ali al-Nowaihi & Sanjit Dhami, 2013. "Foundations and Properties of Time Discount Functions," Discussion Papers in Economics 13/27, Division of Economics, School of Business, University of Leicester.
    7. Ali al-Nowaihi & Sanjit Dhami, 2006. "A Note On Generalized Hyperbolic Discounting," Discussion Papers in Economics 06/10, Division of Economics, School of Business, University of Leicester.
    8. Scholten, Marc & Read, Daniel, 2006. "Beyond discounting: the tradeoff model of intertemporal choice," LSE Research Online Documents on Economics 22710, London School of Economics and Political Science, LSE Library.
    9. Ali al-Nowaihi & Sanjit Dhami, 2021. "Preferences over Time and under Uncertainty: Theoretical Foundations," CESifo Working Paper Series 9215, CESifo.
    10. Ali al-Nowaihi & Sanjit Dhami, 2007. "Explaining the anomalies of the exponential discounted utility model," Discussion Papers in Economics 07/09, Division of Economics, School of Business, University of Leicester.
    11. Ali al-Nowaihi & Sanjit Dhami, 2013. "A Theory of Reference Time," Discussion Papers in Economics 13/26, Division of Economics, School of Business, University of Leicester.
    12. Lidia Ceriani & Chiara Gigliarano, 2015. "An Inter-temporal Relative Deprivation Index," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 124(2), pages 427-443, November.
    13. Ali al-Nowaihi & Sanjit Dhami, 2008. "A general theory of time discounting: The reference-time theory of intertemporal choice," Discussion Papers in Economics 08/34, Division of Economics, School of Business, University of Leicester.
    14. Strohhecker, Jürgen & Größler, Andreas, 2013. "Do personal traits influence inventory management performance?—The case of intelligence, personality, interest and knowledge," International Journal of Production Economics, Elsevier, vol. 142(1), pages 37-50.
    15. repec:dau:papers:123456789/6511 is not listed on IDEAS

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    More about this item

    Keywords

    Anomalies of the DU model; Intertemporal choice; Generalized hyperbolic discounting;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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