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A Note On The Loewenstein-Prelec Theory Of Intertemporal Choice

Author

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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, Department of Economics, University of Leicester.
  • Handle: RePEc:lec:leecon:05/18
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    File URL: http://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp05-18.pdf
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    References listed on IDEAS

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    1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    2. 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.
    3. George Loewenstein & Drazen Prelec, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, Oxford University Press, vol. 107(2), pages 573-597.
    4. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    5. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    6. E. S. Phelps & R. A. Pollak, 1968. "On Second-Best National Saving and Game-Equilibrium Growth," Review of Economic Studies, Oxford University Press, vol. 35(2), pages 185-199.
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    Citations

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    Cited by:

    1. Ali al-Nowaihi & Sanjit Dhami, 2007. "Explaining the anomalies of the exponential discounted utility model," Discussion Papers in Economics 07/09, Department of Economics, University of Leicester.
    2. Ali al-Nowaihi & Sanjit Dhami, 2013. "A Theory of Reference Time," Discussion Papers in Economics 13/26, Department of Economics, University of Leicester.
    3. Nina Anchugina & Matthew Ryan & Arkadii Slinko, 2016. "Aggregating time preferences with decreasing impatience," Papers 1604.01819, arXiv.org.
    4. Ali al-Nowaihi & Sanjit Dhami, 2018. "Foundations for Intertemporal Choice," CESifo Working Paper Series 6913, CESifo Group Munich.
    5. 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, Department of Economics, University of Leicester.
    6. Pushpa, Rathie & Carlos, Radavelli & Sergio, Da Silva, 2006. "Sharpening Intertemporal Prospect Theory," MPRA Paper 1849, University Library of Munich, Germany.
    7. Ali al-Nowaihi & Sanjit Dhami, 2013. "Foundations and Properties of Time Discount Functions," Discussion Papers in Economics 13/27, Department of Economics, University of Leicester.
    8. 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.
    9. repec:eee:ecolet:v:155:y:2017:i:c:p:140-143 is not listed on IDEAS
    10. 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, Department of Economics, University of Leicester.
    11. 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.
    12. Ali al-Nowaihi & Sanjit Dhami, 2006. "A Note On Generalized Hyperbolic Discounting," Discussion Papers in Economics 06/10, Department of Economics, University of Leicester.
    13. 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.
    14. repec:dau:papers:123456789/6511 is not listed on IDEAS

    More about this item

    Keywords

    Anomalies of the DU model; Intertemporal choice; Generalized hyperbolic discounting;

    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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