Influencing decision making through discounting functions

Suprava Devi, Mitali Madhusmita Nayak and Srikanta Patnaik

International Journal of Management and Decision Making, 2021, vol. 20, issue 2, 163-181

Abstract: Majority of decisions constitutes a sequence of payoffs over a certain period, for which the decision makers construct the necessary tradeoffs among the current and future payoffs, rather than concerning typical discounting model. The paper discusses about the basic discounting models and their behaviours, greater discount rates for lesser outcomes in comparison with bigger outcomes and for benefits in contrast to losses. The work of the paper shows how to manage uncertainty by manipulating the requirement of hyperbolic discounting individuals for cooperation. The higher payoffs are preferred by the exponentially discounted individuals while the hyperbolically discounted individuals prefer the harder or restrictive one. The article also evaluates the different types of discounting models and then applies the model of hyperbolic discounting to the cooperation problem of Ainslie's prediction to the game of iterated prisoner's dilemma to outlines the given model of IPD and the conflicting point. We reveal that the delay payoffs are eminent for smaller weights which show that it will be better for the rational actor preferred to choose cooperate because they have inclination towards high discount for the near future.

Keywords: discounted utility; exponential discounting; hyperbolic discounting; quasi-hyperbolic discounting; iterated prisoner's dilemma; IPD; intertemporal choice. (search for similar items in EconPapers)
Date: 2021
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