Quantification of Aversion to Uncertainty in Intertemporal Choice through Subjective Perception of Time

Viviana Ventre and Roberta Martino ()
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Viviana Ventre: Department of Mathematics and Physics, University of Campania Luigi Vanvitelli, Viale A. Lincoln, 5, 81100 Caserta, Italy
Roberta Martino: Department of Mathematics and Physics, University of Campania Luigi Vanvitelli, Viale A. Lincoln, 5, 81100 Caserta, Italy

Mathematics, 2022, vol. 10, issue 22, 1-16

Abstract: Intertemporal choices are those decisions structured over several periods in which the effects only manifest themselves with the passage of time. The main mathematical reference for studying the behavior of individuals with respect to this type of decision is the Discounted Utility Model which hypothesizes completely rational individuals. The empirical evidence that deviates from normative expectations has motivated the formulation of alternative models with the aim of better describing the behavior of individuals. The present paper investigates the characteristics behind hyperbolic discounting starting from the phenomenon of decision inconsistency, i.e., when individuals’ preferences vary over time. The mechanisms of inconsistency will be explored through the physical concept of relative time, proving the importance of uncertainty aversion in the hyperbolic trend of the discount function. The analysis of the mathematical characteristics of hyperbolic discounting and the relationship between decision inconsistency and subjective perception of time defines the maximum distance between rational and non-rational preferences. An experimental part empirically proves the relationship between uncertainty aversion and time inconsistency. The present paper contributes to the literature by defining a new characteristic of hyperbolic discounting and quantifying the impact of the subjective perception of time in the decision-making process.

Keywords: hyperbolic discounting; intertemporal choice; impatience; inconsistency; subjective perception of time; uncertainty (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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