A general theory of time discounting: The reference-time theory of intertemporal choice

Ali al-Nowaihi () and Sanjit Dhami

No 08/22, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: We develop a general theory of intertemporal choice: the reference-time theory, RT. RT is a synthesis of ideas from the generalized hyperbolic model (Loewenstein and Prelec 1992), the quasi-hyperbolic model (Phelps and Pollak 1968, Laibson 1997) and subadditivity of time discounting (Roelofsma and Read 2000, Read 2001 and Scholten and Read 2006a). These models are extended to allow for (i) reference points for time and wealth, and (ii) different discount functions for gains and losses. RT is able to account for all the 6 main anomalies of time discounting: gain-loss asymmetry, magnitude effect, common difference effect, delay-speedup asymmetry, apparent intransitivity of time preferences, and non-additivity of time discounting. We provide a class of utility functions compatible with RT. We show how RT can be extended to incorporate uncertainty and attribute models of intertemporal choice.

Keywords: Anomalies of the discounted utility model; Hyperbolic discounting; Prospect theory; gamma-delay; alpha-subadditivity; SIE value functions (search for similar items in EconPapers)
JEL-codes: C60 D91 (search for similar items in EconPapers)
Date: 2008-07
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

Downloads: (external link)
https://www.le.ac.uk/economics/research/RePEc/lec/leecon/dp08-22.pdf (application/pdf)

Related works:
Working Paper: A general theory of time discounting: The reference-time theory of intertemporal choice (2008)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:lec:leecon:08/22

Ordering information: This working paper can be ordered from
https://www2.le.ac.u ... -1/discussion-papers

Access Statistics for this paper

More papers in Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester School of Business, University of Leicester, University Road. Leicester. LE1 7RH. UK Provider-Homepage: https://le.ac.uk/school-of-business. Contact information at EDIRC.
Bibliographic data for series maintained by Abbie Sleath ().