Identification of Dynamic Discrete Choice Models with Hyperbolic Discounting Using a Terminating Action

Chao Wang (), Stefan Weiergraeber () and Ruli Xiao ()
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Chao Wang: Indiana University, Department of Economics
Stefan Weiergraeber: Indiana University, Department of Economics
Ruli Xiao: Indiana University, Department of Economics

CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: We study the identification of dynamic discrete choice models with hyperbolic discounting using a terminating action. We provide novel identification results for both sophisticated and naive agents? discount factors and their utilities in a finite horizon framework under the assumption of a stationary flow utility. In contrast to existing identification strategies we do not require to observe the final period for the sophisticated agent. Moreover, we avoid normalizing the flow utility of a reference action for both the sophisticated and the naive agent. We propose two simple estimators and show that they perform well in simulations.

Keywords: hyperbolic discounting; dynamic discrete choice model; identification (search for similar items in EconPapers)
Pages: 45 pages
Date: 2022-06
New Economics Papers: this item is included in nep-dcm, nep-ecm and nep-upt
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Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2022010

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