IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Foundations and Properties of Time Discount Functions

  • Ali al-Nowaihi

    ()

  • Sanjit Dhami

    ()

Registered author(s):

    A critical element in all discounted utility models is the specification of a discount function. We extend the standard model to allow for reference points for both out- comes and time. We consider the axiomatic foundations and properties of two main classes of discount functions. The first, the Loewenstein-Prelec discount function, accounts for declining impatience but cannot account for the evidence on subadditivity. A second class of discount functions, the Read-Scholten discount function accounts for declining impatience and subadditivity. We derive restrictions on an individual’s preferences to expedite or to delay an outcome that give rise to the discount functions under consideration. As an application of our framework we consider the explanation of the common difference effect.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.le.ac.uk/economics/research/repec/lec/leecon/dp13-27.pdf
    Download Restriction: no

    Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 13/27.

    as
    in new window

    Length:
    Date of creation: Nov 2013
    Date of revision:
    Handle: RePEc:lec:leecon:13/27
    Contact details of provider: Postal: Department of Economics University of Leicester, University Road. Leicester. LE1 7RH. UK
    Phone: +44 (0)116 252 2887
    Fax: +44 (0)116 252 2908
    Web page: http://www2.le.ac.uk/departments/economics
    Email:


    More information through EDIRC

    Order Information: Web: http://www2.le.ac.uk/departments/economics/research/discussion-papers Email:


    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.:

    as in new window
    1. Tversky, Amos & Kahneman, Daniel, 1992. " Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Marc Scholten & Daniel Read, 2006. "Discounting by Intervals: A Generalized Model of Intertemporal Choice," Management Science, INFORMS, vol. 52(9), pages 1424-1436, September.
    3. Read, Daniel, 2001. " Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, vol. 23(1), pages 5-32, July.
    4. Ok, Efe A. & Masatlioglu, Yusufcan, 2007. "A theory of (relative) discounting," Journal of Economic Theory, Elsevier, vol. 137(1), pages 214-245, November.
    5. Loewenstein, George & Prelec, Drazen, 1992. "Anomalies in Intertemporal Choice: Evidence and an Interpretation," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 573-97, May.
    6. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
    7. Ali al-Nowaihi & Sanjit Dhami, 2008. "A general theory of time discounting: The reference-time theory of intertemporal choice," Discussion Papers in Economics 08/22, Department of Economics, University of Leicester.
    8. George F. Loewenstein, 1988. "Frames of Mind in Intertemporal Choice," Management Science, INFORMS, vol. 34(2), pages 200-214, February.
    9. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    10. 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.
    11. Adrian Bruhin & Helga Fehr-Duda & Thomas Epper, 2007. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," SOI - Working Papers 0705, Socioeconomic Institute - University of Zurich, revised Jul 2007.
    12. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
    13. al-Nowaihi, Ali & Bradley, Ian & Dhami, Sanjit, 2008. "A note on the utility function under prospect theory," Economics Letters, Elsevier, vol. 99(2), pages 337-339, May.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:lec:leecon:13/27. 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: (Mrs. Alexandra Mazzuoccolo)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.