Allais meets Strotz: Remarks on the relation between Present Bias and the Certainty Effect

Anujit Chakraborty and Yoram Halevy

Microeconomics.ca working papers from Vancouver School of Economics

Abstract: The paper establishes a tight relation between non-standard behaviors in the domains of risk and time by considering a decision maker with non-expected utility preferences who believes that only present consumption is certain while any future consumption is uncertain. We provide the first complete characterization of the two-way relations between i) certainty effect and present bias, and, ii) common ratio effect and the common difference effect. A corollary to our results is that hyperbolic discounting implies the Common Ratio Effect and that quasi-hyperbolic discounting implies the Certainty Effect.

Keywords: hyperbolic discounting; present bias; non-expected utility; prospect theory; common ratio effect (search for similar items in EconPapers)
JEL-codes: C91 D03 D81 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2015-02-07, Revised 2016-11-03
New Economics Papers: this item is included in nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ubc:pmicro:yoram_halevy-2015-7

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