Foundations for Intertemporal Choice

43 Pages Posted: 7 May 2018

See all articles by Ali al-Nowaihi

Ali al-Nowaihi

University of Leicester - Department of Economics

Sanjit Dhami

University of Leicester

Date Written: March 05, 2018

Abstract

We consider discounted-utility models with a reference stream of outcomes. We provide a common framework for the main empirically supported discount functions in terms of three underlying functions: The delay, speedup and generating functions. Each of the delay and speedup functions can be uniquely elicited from behavior and, hence, can be fitted to the data. These two functions determine whether the discount function is subadditive, additive or superadditive; and whether the discount function exhibits declining, constant or increasing impatience. The third function, the generating function, links the speedup function to the discount function. Our framework nests several important attribute-based models that are typically considered to be in a separate class. We also show that apparent intransitivities of time preferences can be accounted for by framing effects.

Keywords: time discounting, framing effects, impatience, additivity, common difference effect, intransitive preferences

JEL Classification: C600, D910

Suggested Citation

al-Nowaihi, Ali and Dhami, Sanjit, Foundations for Intertemporal Choice (March 05, 2018). Available at SSRN: https://ssrn.com/abstract=3167146 or http://dx.doi.org/10.2139/ssrn.3167146

Ali Al-Nowaihi

University of Leicester - Department of Economics ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

Sanjit Dhami (Contact Author)

University of Leicester ( email )

Department of Economics
Leicester LE1 7RH, Leicestershire LE1 7RH
United Kingdom

HOME PAGE: http://www2.le.ac.uk/departments/economics/people/sdhami

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