Non-hyperbolic time inconsistency

• Published in: Games and economic behavior Vol. 66; no. 1; pp. 27 - 38
• Main Authors: Bleichrodt, Han, Rohde, Kirsten I.M., Wakker, Peter P.
• Format: Journal Article
• Language: English
• Published: Duluth Elsevier Inc 01.05.2009; Elsevier; Academic Press
• Series: Games and Economic Behavior
• Subjects: CADI discounting; CRDI discounting; Decision making; Decreasing impatience; Discounts; Economic behaviour; Flexibility; Hyperbolic discounting; Hyperbolic discounting CADI discounting CRDI discounting Decreasing impatience Time preference; Individuals; Preferences; Risk; Studies; Time; Time preference; Utility functions; CADI discounting; CRDI discounting; Hyperbolic discounting; Time preference; D90; Decreasing impatience; C60
• ISSN: 0899-8256; 1090-2473
• DOI: 10.1016/j.geb.2008.05.007

The commonly used hyperbolic and quasi-hyperbolic discount functions have been developed to accommodate decreasing impatience, which is the prevailing empirical finding in intertemporal choice, in particular for aggregate behavior. However, these discount functions do not have the flexibility to accommodate increasing impatience or strongly decreasing impatience. This lack of flexibility is particularly disconcerting for fitting data at the individual level, where various patterns of increasing impatience and strongly decreasing impatience will occur for a significant fraction of subjects. This paper presents discount functions with constant absolute (CADI) or constant relative (CRDI) decreasing impatience that can accommodate any degree of decreasing or increasing impatience. In particular, they are sufficiently flexible for analyses at the individual level. The CADI and CRDI discount functions are the analogs of the well-known CARA and CRRA utility functions for decision under risk.