Time-Tradeoff Sequences for Analyzing Discounting and Time Inconsistency

• Published in: Management science Vol. 56; no. 11; pp. 2015 - 2030
• Main Authors: Attema, Arthur E., Bleichrodt, Han, Rohde, Kirsten I. M., Wakker, Peter P.
• Format: Journal Article
• Language: English
• Published: Hanover, MD INFORMS 01.11.2010; Institute for Operations Research and the Management Sciences
• Series: Management Science
• Subjects: Ambivalence; Applied sciences; Arbitrage; Axiomatization; Concavity; Convexity; Decision theory. Utility theory; Discounting; Economic uncertainty; Empirical research; Exact sciences and technology; Experiments; Health outcomes; Hyperbolic discounting; increasing impatience; Management science; Measurement; Operational research and scientific management; Operational research. Management science; Quantitative analysis; Risk aversion; stationarity; Studies; Term weighting; Time; Time & motion studies; time inconsistency; time preference; Tradeoff analysis; Netherlands; Discount; Decision making; Myopia; Empirical method; Rebate; increasing impatience; Intertemporal choice; Rejection; Discounting; Consumer behavior; Utility theory; time inconsistency; Preference; time preference; Feasibility; hyperbolic discounting; stationarity
• ISSN: 0025-1909; 1526-5501
• DOI: 10.1287/mnsc.1100.1219

This paper introduces time-tradeoff (TTO) sequences as a general tool to analyze intertemporal choice. We give several applications. For empirical purposes, we can measure discount functions without requiring any measurement of or assumption about utility. We can quantitatively measure time inconsistencies and simplify their qualitative tests. TTO sequences can be administered and analyzed very easily, using only pencil and paper. For theoretical purposes, we use TTO sequences to axiomatize (quasi-)hyperbolic discount functions. We demonstrate the feasibility of measuring TTO sequences in an experiment, in which we tested the axiomatizations. Our findings suggest rejections of several currently popular discount functions and call for the development of new ones. It is especially desirable that such discount functions can accommodate increasing impatience.