Strotz meets Allais: Diminishing Impatience and the Certainty Effect

Yoram Halevy

Microeconomics.ca working papers from Vancouver School of Economics

Abstract: Decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward. This work argues that diminishing impatience originates from the distinction between the certain present and the risky future. A simple functional representation of preferences, which exhibits time inconsistency when the future is uncertain, is derived. Existing experimental evidence, which is inconsistent with other formulations that account for diminishing impatience, supports the proposed approach. Furthermore, the new theory uncovers a tight relation between diminishing impatience and well-known behavioral regularities in the field of choice under risk and uncertainty

Keywords: Intertemporal Substitution; Non-Expected Utility; The Dual Theory; Certainty Effect; Time Consistency; Uncertain Lifetime; Exponential Discounting; Hy (search for similar items in EconPapers)
JEL-codes: D81 D91 (search for similar items in EconPapers)
Pages: 18 pages
Date: 2004-10-29, Revised 2014-02-25
New Economics Papers: this item is included in nep-exp
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Related works:
Journal Article: Strotz Meets Allais: Diminishing Impatience and the Certainty Effect (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:ubc:pmicro:yoram_halevy-2004-16

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