Increasing elasticity of the value function in the Loewenstein-Prelec theory of intertemporal choice

Ali al-Nowaihi () and Sanjit Dhami

No 07/13, Discussion Papers in Economics from Division of Economics, School of Business, University of Leicester

Abstract: In a critique of the Loewenstein and Prelec (1992) theory of intertemporal choice, al-Nowaihi and Dhami (2006) point out to four errors. One of the alleged errors was that the value function in prospect theory is decreasing. But it is in fact increasing. We provide a correction and a formal proof. As a corollary, we show that the elasticity of the value function is bounded between zero and one. Nevertheless, all the remaining points in al-Nowaihi and Dhami (2006) remain valid.

Keywords: Anomalies of the DU model; Intertemporal choice; Generalized hyperbolic discounting (search for similar items in EconPapers)
JEL-codes: C60 D91 (search for similar items in EconPapers)
Date: 2007-10
New Economics Papers: this item is included in nep-hpe and nep-upt
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