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

By Ali al-Nowaihi and Sanjit Dhami


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

Topics: Anomalies of the DU model, Intertemporal choice, Generalized hyper-bolic discounting
Publisher: Dept. of Economics, University of Leicester
Year: 2007
OAI identifier: oai:lra.le.ac.uk:2381/7470

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