EconPapers    
Economics at your fingertips  
 

Myopia and Discounting

Xavier Gabaix and David Laibson ()

No 23254, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We assume that perfectly patient agents estimate the value of future events by generating noisy, unbiased simulations and combining those signals with priors to form posteriors. These posterior expectations exhibit as-if discounting: agents make choices as if they were maximizing a stream of known utils weighted by a discount function, D(t). This as-if discount function reflects the fact that estimated utils are a combination of signals and priors, so average expectations are optimally shaded toward the mean of the prior distribution, generating behavior that partially mimics the properties of classical time preferences. When the simulation noise has variance that is linear in the event's horizon, the as-if discount function is hyperbolic, D(t)=1/(1+a t). Our agents exhibit systematic preference reversals, but have no taste for commitment because they suffer from imperfect foresight, which is not a self-control problem. In our framework, agents that are more skilled at forecasting (e.g., those with more intelligence) exhibit less discounting. Agents with more domain-relevant experience exhibit less discounting. Older agents exhibit less discounting (except those with cognitive decline). Agents who are encouraged to spend more time thinking about an intertemporal tradeoff exhibit less discounting. Agents who are unable to think carefully about an intertemporal tradeoff – e.g., due to cognitive load – exhibit more discounting. In our framework, patience is highly unstable, fluctuating with the accuracy of forecasting.

JEL-codes: D03 D14 E03 E23 (search for similar items in EconPapers)
Date: 2017-03
New Economics Papers: this item is included in nep-mac, nep-mic and nep-neu
Note: AG EFG
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (11) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w23254.pdf (application/pdf)

Related works:
Working Paper: Myopia and Discounting (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:23254

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w23254

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2020-09-19
Handle: RePEc:nbr:nberwo:23254