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A general theory of time discounting: The reference-time theory of intertemporal choice

By Ali al-Nowaihi and Sanjit Dhami


We develop a general theory of intertemporal choice: the reference-time theory, RT. RT is a synthesis of ideas from the hyperbolic model and subadditivity of time discounting. These models are extended to allow for a reference point for time as well as wealth. RT is able to account for all the 6 main anomalies of time discount-ing: gain-loss asymmetry, magnitude effect, common difference effect, delay-speedup asymmetry, apparent intransitivity of time preferences, and non-additivity of time discounting. We provide a class of utility functions compatible with RT. We show how RT can be extended to incorporate uncertainty and attribute models of in-tertemporal choice

Topics: Anomalies of the discounted utility model, Hyperbolic discounting, Prospect theory, γ-delay, α-subadditivity, SIE value functions
Publisher: Dept. of Economics, University of Leicester
Year: 2008
OAI identifier: oai:lra.le.ac.uk:2381/7565

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