An Explanation of Hyperbolic Marginal Utility from Money

N. Arad

Working Papers from Tel Aviv

Abstract: "Hyperbolic discount functions are characterized by a relatively high discount rate over short horizons and a relatively low discount rate over long horizon" [Laibson 1997, p. 445]. In this theoretical note, we show that individuals hyperbolically discount marginal utility from money when they follow a cognitive procedure in which they believe that their wealth might increase or decrease in each future period under the constraint of a small-perceived probability that wealth will deteriorate below its current level.

Keywords: DISCOUNT RATE; MONEY; WEALTH (search for similar items in EconPapers)
JEL-codes: D90 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2000
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:fth:teavfo:2000-25

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