On time-consistent equilibrium stopping under aggregation of diverse discount rates

Shuoqing Deng, Xiang Yu and Jiacheng Zhang

Papers from arXiv.org

Abstract: This paper studies a central planner's decision making on behalf of a group of members with diverse discount rates. In the context of optimal stopping, we work with an aggregation preference to incorporate all discount rates via an attitude function that reflects the aggregation rule chosen by the central planner. The problem formulation is also applicable to single agent's stopping problem with uncertain discount rate, where our aggregation preference coincides with the conventional smooth ambiguity preference. The resulting optimal stopping problem is time inconsistent, for which we develop an iterative approach using consistent planning and characterize all time-consistent mild equilibria as fixed points of an operator in the setting of one-dimensional diffusion processes. We provide some sufficient conditions on the underlying models and the attitude function such that the smallest mild equilibrium attains the optimal equilibrium. In addition, we show that the optimal equilibrium is a weak equilibrium. When the sufficient condition of the attitude function is violated, we illustrate by various examples that the characterization of the optimal equilibrium may differ significantly from some existing results for a single agent, which now sensitively depends on the attitude function and the diversity distribution of discount rates within the group.

Date: 2023-02, Revised 2025-07
New Economics Papers: this item is included in nep-mic and nep-upt
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