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Dynamic choices of hyperbolic consumers: the continuous time case

Author

Listed:
  • Ivar Ekeland
  • Lazrak Ali

    (Sauder school of business university of british columbia)

Abstract

This paper characterizes the set of differentiable subgame perfect equilibria in a continuous time intertemporal decision optimization problem with non-constant discounting. The idea of an infinitesimal self is formalized and the equilibrium characterization takes the form of an integral equation (IE) which is reminiscent of the Hamilton-Jacobi-Bellman equation. Beginning with a local existence proof of IE, we analyze some equilibria of the consumption saving problem. We then use the equation IE to suggest a critical indeterminacy in the Ramsey growth model with non-constant discounting

Suggested Citation

  • Ivar Ekeland & Lazrak Ali, 2006. "Dynamic choices of hyperbolic consumers: the continuous time case," 2006 Meeting Papers 822, Society for Economic Dynamics.
    • Handle: RePEc:red:sed006:822
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Hyperbolic discount; consumption saving decision; growth theory;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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