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Delay Functions as the Foundation of Time Preference: Testing for Separable Discounted Utility

Keith Ericson and Jawwad Noor ()

No 21095, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Delay functions, which vary timing of rewards but fix the money dimension, can elicit the form of discount functions with minimal assumptions. We present a general theorem that characterizes the set of discount functions and utility indices compatible with any 'regular' preference. We provide conditions to test for separable discounted utility (SDU). We elicit individual delay functions for a range of amounts and time horizons. When we impose SDU assumptions, we classify more than half our analysis sample as exponential discounters. However, we reject SDU assumptions for 68% of the sample in favor of magnitude-dependent discounting with time distortion.

JEL-codes: D01 D03 D9 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-upt
Date: 2015-04
Note: AG
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