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Evolution as Learning Yields Hyperbolic Discounting

  • James Woods

    (Portland State University)

Learning is modeled as an infection, which jumps from person to person. The rate of infection mimics individual discount rates and induces savings behavior on its own. It is shown that the apparent discount rate, the combination of the agents' true discount rate and the infection rate, decreases over time and approaches the agents' true discount rate. This decrease, known as hyperbolic discounting, is consistent with what is observed in psychology studies, while the limiting case, exponential discounting, is consistent with market level observations. This model closes the gap between individual and market level observations of discounting behavior without explicitly assuming the two kinds of discounting nor relying on commitment mechanisms.

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Paper provided by EconWPA in its series GE, Growth, Math methods with number 0309001.

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Length: 23 pages
Date of creation: 01 Sep 2003
Date of revision: 28 Dec 2003
Handle: RePEc:wpa:wuwpge:0309001
Note: Type of Document - Acrobat PDF; prepared on Linux Kile; to print on PostScript; pages: 23; figures: included
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  1. 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.
  2. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  3. Read, Daniel, 2001. " Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, vol. 23(1), pages 5-32, July.
  4. Azfar, Omar, 1999. "Rationalizing hyperbolic discounting," Journal of Economic Behavior & Organization, Elsevier, vol. 38(2), pages 245-252, February.
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