Varying Impatience

Shinsuke Ikeda

Chapter Chapter 2 in The Economics of Self-Destructive Choices, 2016, pp 25-42 from Springer

Abstract: Abstract In standard economics, or “neo-classical economics,” discussions have been restricted to the paradigm of the “Discounted Utility Model.” This theory assumes that people maximize the discounted sum of the gratification flows at each point in time, where future gratifications are presupposed to be discounted at a constant rate in any situation and for any intertemporal-choice problem. However, as I discussed briefly in the previous chapter, 40 years of empirical research has shown that a decision-maker’s personal discount rate varies depending on choice conditions (e.g., differing amounts and/or delays) and the context in which the intertemporal-choice problem is framed. If this fluctuation only occurred in exceptional situations and did not introduce biases into the decision-making process, it would not be a serious problem. However, as I illustrate below, the phenomenon is associated with many, and in some cases very serious, “irrational” behaviors and social phenomena in everyday life. In economics, a phenomenon that the existing standard theory (i.e., the paradigm) cannot explain without positing unrealistic assumptions is called an (Loewenstein and Prelec 1992). The phenomenon that personal discount rates vary greatly depending on intertemporal-choice conditions and the contexts of those choices is called an intertemporal-choice anomaly or a .

Keywords: Interest Rate; Discount Rate; Marginal Utility; Magnitude Effect; Monetary Reward (search for similar items in EconPapers)
Date: 2016
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Persistent link: https://EconPapers.repec.org/RePEc:spr:advchp:978-4-431-55793-7_2

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DOI: 10.1007/978-4-431-55793-7_2

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