Abstract
Some empirical studies have shown that economic agents do not always use constant discount rates through time. That is to say, they do not always use exponential discounting which is a particular case of consistent intertemporal choice, since it predicts there will not be preference reversal when choosing a reward as more valued, independently of the moment of decision making. On the other hand, one of the most important problems of non-constant discounting is its inconsistency in intertemporal choice. In this way, we show that one of the main sources of inconsistency is subadditivity.
We thank Daniel Read (Warwick Business School) for useful discussions on an earlier draft; Morten Lau (Durham Business School) and Bill McKelvey (Anderson School at UCLA) for their helpful suggestions.
The authors acknowledge financial support by the Consejería de Economía, Innovación y Ciencia of the Junta de Andalucía, Project P09-SEJ-5404.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
Azfar, O.: Rationalizing hyperbolic discounting. Journal of Economic Behavior & Organization 38, 245–252 (1999)
Benzion, U., Rapaport, A., Yagil, J.: Discount rates inferred from decisions: an experimental study. Management Science 35(3), 270–284 (1989)
Cropper, M., Aydede, S., Portney, P.: Rates of time preference for saving lives. American Economic Review (Papers and Proceedings) 82(2), 469–472 (1992)
Cruz Rambaud, S., Muñoz Torrecillas, M.J.: An analysis of the anomalies in traditional discounting models. International Journal of Psychology and Psychological Therapy 4(1), 105–128 (2004)
Cruz Rambaud, S., Muñoz Torrecillas, M.J.: Some considerations on the social discount rate. Environmental Science and Policy 8, 343–355 (2005)
Dasgupta, P., Maskin, E.: Uncertainty and hyperbolic discounting. The American Economic Review 95(4), 1290–1299 (2005)
Green, L., Myerson, J.: Exponential versus hyperbolic discounting of delayed outcomes: Risk and waiting time. American Zoologist 36, 496–505 (1996)
Green, L., Myerson, J., Ostaszewski, P.: Amount of reward has opposite effects on the discounting of delayed and probabilistic outcomes. Journal of Experimental Psychology: Learning, Memory and Cognition 25, 418–427 (1999)
Harrison, G., Lau, M.: Is the Evidence for Hyperbolic Discounting in Humans Just An Experimental Artefact? Behavioral and Brain Sciences 28(5), 657 (2005)
Harrison, G., Lau, M., Williams, M.: Estimating individual discount rates in Denmark: A field experiment. The American Economic Review 92(5), 1606–1617 (2002)
Heal, G.: Discounting and climate change. Climatic Change 37(2), 335–343 (1997)
Herrnstein, R.J.: Self-control as response strength. In: Bradshaw, C.M., Szabadi, E., Lowe, C.F. (eds.) En Quantification of Steady-State Operant Behavior. Elsevier, North-Holland, Amsterdam (1981)
Kirby, K.: Bidding on the future: Evidence against normative discounting of delayed rewards. Journal of Experimental Psychology: General 126, 54–70 (1997)
Kirby, K., Marakovic, N.: Modelling myopic decisions: Evidence for hyperbolic delay-discounting within subjects and amounts. Organizational Behavior and Human Decision Processes 64, 22–30 (1995)
Loewenstein, G., Thaler, R.: Anomalies in intertemporal choice. Journal of Economic Perspectives 3, 181–193 (1989)
Mazur, J.: An adjustement procedure for studying delayed reinforcement. In: Commons, M.L., Mazur, J.E., Nevins, J.A., Rachlin, H. (eds.) Quantitative Analyses of Behavior: The effect of Delay and of Intervening Events on Reinforcement Value, ch. 2. Erlbaum, Hillsdale (1987)
Mulligan, C.: A logical economist’s argument against hyperbolic discounting. Working Paper (1996)
Myerson, J., Green, L.: Discounting of delayed rewards: Models of individual choice. Journal of the Experimental Analysis of Behavior 64, 263–276 (1995)
Myerson, J., Green, L., Warusawitharana, M.: Area under the curve as a measure of discounting. Journal of the Experimental Analysis of Behavior 76(2), 235–243 (2001)
Newell, R., Pizer, W.: Discounting the Distant Future: How Much do Uncertain Rates Increase Valuations? Discussion Paper 00-45. Resources for the Future, Washington DC (2000)
Rachlin, H., Raineri, A., Cross, D.: Subjective probability and delay. Journal of the Experimental Analysis of Behavior 55, 233–244 (1991)
Read, D.: Intertemporal choice. Working Paper, London School of Economics (LSEOR 03.58) (2003)
Rubinstein, A.: Economics and psychology?: The case of hyperbolic discounting. International Economic Review 44(4), 1207–1216 (2003)
Samuelson, P.: A note on the measurement of utility. Review of Economic Studies 4, 155–161 (1937)
Scholten, M., Read, D.: Discounting by intervals: a generalised model of intertemporal choice. Management Science 52(9), 1424–1436 (2006)
Strotz, R.: Myopia and inconsistency in dynamic utility maximization. Review of Economic Studies 23, 165–180 (1955)
Thaler, R.: Some empirical evidence on dynamic inconsistency. Economic Letters 8, 201–207 (1981)
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Rights and permissions
Copyright information
© 2013 Springer-Verlag Berlin Heidelberg
About this chapter
Cite this chapter
Cruz Rambaud, S., Muñoz Torrecillas, M.J. (2013). An Analysis of Inconsistency in Intertemporal Choice. In: Ventre, A., Maturo, A., Hošková-Mayerová, Š., Kacprzyk, J. (eds) Multicriteria and Multiagent Decision Making with Applications to Economics and Social Sciences. Studies in Fuzziness and Soft Computing, vol 305. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-35635-3_8
Download citation
DOI: https://doi.org/10.1007/978-3-642-35635-3_8
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-35634-6
Online ISBN: 978-3-642-35635-3
eBook Packages: EngineeringEngineering (R0)