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Foundations for Intertemporal Choice

Author

Listed:
  • Ali al-Nowaihi
  • Sanjit Dhami
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.

Suggested Citation

  • Ali al-Nowaihi & Sanjit Dhami, 2018. "Foundations for Intertemporal Choice," CESifo Working Paper Series 6913, CESifo.
    • Handle: RePEc:ces:ceswps:_6913
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp6913.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sanjit Dhami & Ali al-Nowaihi & Cass R. Sunstein, 2019. "Heuristics and Public Policy: Decision-making Under Bounded Rationality," Studies in Microeconomics, , vol. 7(1), pages 7-58, June.
    2. Ali al-Nowaihi & Sanjit Dhami, 2021. "Preferences over Time and under Uncertainty: Theoretical Foundations," CESifo Working Paper Series 9215, CESifo.

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    More about this item

    Keywords

    time discounting; framing effects; impatience; additivity; common difference effect; intransitive preferences;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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