Hyperbolic discounting in the absence of credibility

Elisa Cavatorta and Ben Groom

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: Hyperbolic discounting behavior can arise in experiments when expected utility maximizing subjects who discount exponentially doubt the credibility of future payoffs. We show theoretically that lack of credibility introduces a present bias, as subjects internalize the uncertainty. Hence, experiments that do not ensure credibility may erroneously conclude that observed behavior is driven by hyperbolic pure time preferences, rather than the rational response to non-credible payoffs.

JEL-codes: J1 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2019-03-25
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