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Hyperbolic discounting can be good for your health

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  • Strulik, Holger
  • Trimborn, Timo

Abstract

It has been argued that hyperbolic discounting of future gains and losses leads to time-inconsistent behavior and thereby, in the context of health economics, not enough investment in health and too much indulgence of unhealthy consumption. Here, we challenge this view. We set up a life-cycle model of human aging and longevity in which individuals discount the future hyperbolically and make time-consistent decisions. This allows us to disentangle the role of discounting from the time consistency issue. We show that hyperbolically discounting individuals, under a reasonable normalization, invest more in their health than they would if they had a constant rate of time preference. Using a calibrated life-cycle model of human aging, we predict that the average U.S. American lives about 4 years longer with hyperbolic discounting than he would if he had applied a constant discount rate. The reason is that, under hyperbolic discounting, experiences in old age receive a relatively high weight in life time utility. In an extension we show that the introduction of health-dependent survival probability motivates an increasing discount rate for the elderly and, in the aggregate, a u-shaped pattern of the discount rate with respect to age.

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  • Strulik, Holger & Trimborn, Timo, 2016. "Hyperbolic discounting can be good for your health," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 11/2016, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
  • Handle: RePEc:zbw:tuweco:112016
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    1. repec:eee:jeborg:v:159:y:2019:i:c:p:210-234 is not listed on IDEAS
    2. Strulik, Holger, 2018. "I shouldn't eat this donut: Self-control, body weight, and health in a life cycle model," Center for European, Governance and Economic Development Research Discussion Papers 360, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    discount rates; present bias; health behavior; aging; longevity;

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I10 - Health, Education, and Welfare - - Health - - - General
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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