Time-Tradeoff Sequences For Analyzing Discounting And Time Inconsistency

ABSTRACT. This paper introduces time-tradeoff (TTO) sequences as a new tool to analyze time inconsistency and intertemporal choice. TTO sequences simplify the measurement of discount functions, requiring no assumption about utility. They also simplify the qualitative testing of time inconsistencies, and allow for quantitative measurements thereof. TTO sequences can easily be administered using only pencil and paper. They readily show which subjects are most prone to time inconsistencies. We further use them to axiomatically analyze and empirically test (quasi-)hyperbolic discount functions. An experiment demonstrates the feasibility of measuring TTO sequences. Our data falsify (quasi-)hyperbolic discount functions and call for the development of models that can accommodate increasing impatience

CloudNeg: An autonomous multi issue negotiation system, with preference elicitation component, for trading cloud services

Cloud services provide its users with flexible resource provisioning. But in the current market, a user has to choose from a limited set of configurations at a fixed price. This paper presents an autonomous negotiation system termed CloudNeg for negotiating cloud services. CloudNeg provides buyers and sellers of cloud services with autonomous agents to negotiate on the specifications of a cloud instance, including price, on their behalf. These agents elicit their buyers’ time preferences and use them in negotiations. Further, this paper presents two artifacts: a negotiation algorithm and a prototype which together form CloudNeg

A measurement of decreasing impatience for health and money

This paper measures deviations from constant discounting and compares these deviations for health and money. Our measurements make no assumptions about utility and do not require separability of preferences over time. In an experiment, most subjects were decreasingly impatient, but a substantial minority was increasingly impatient. The deviations from constant discounting were more pronounced for health than for money suggesting that time preferences are domain-specific. Hyperbolic discounting (Loewenstein and Prelec, Quarterly Journal of Economics, 107, 573â\u80\u93597, 1992) and proportional discounting (Mazur, Quantitative Analyses of Behavior, 5, 55â\u80\u9373, 1987) best described time preferences. Quasi-hyperbolic discounting, the most popular model to accommodate deviations from constant discounting, was rejected for both health and money

Bringing present bias back to the present

A focused definition of present bias is proposed which takes preferences as primitives. A present biased individual over-weights immediate costs and benefits relative to those occurring at any point in the future. The definition allows to sort out previous confounds, such as decreasing impatience, choice reversal or short-term impatience. It intuitively connects to usual utility representations of present bias like the quasi-hyperbolic model of Laibson (1997) or the fixed cost model of Benhabib, Bisin and Schotter (2010). J.E.L. codes: D8, E2

Studies on Intertemporal Preferences with Applications to Health Economics

Economic benefits are often received at different points in time. There are numerous examples of economic applications where the outcomes occur at multiple points in time. Among these are the savings decisions of households, the environmental policies of countries, investment decisions of firms, health-related decisions of individuals, and educational activities of students. In the majority of these cases, future outcomes are valued lower than similar present outcomes, i.e. there is positive time preference. There are several reasons for this behavior. One reason is that the future is almost always surrounded by uncertainty, whilst outcomes received immediately or in the nearer future are more certain. This translates into the discounting of future outcomes. Second, utility is often concave in outcomes (diminishing marginal utility). This means that more units of a particular outcome give less additional utility the more one already possesses of that outcome or the more one has already consumed of it. A second cup of coffee, for example, often gives less utility than the first one. Because wealth is increasing over time due to economic growth, people have more possibilities to consume in the future than in the present. The utility of this extra consumption does, however, not increase proportionally with the increase of consumption, so that future outcomes give less utility than similar present outcomes

Fiscal rules and discretion under persistent shocks

This paper studies the optimal level of discretion in policymaking. We consider a fiscal policy model where the government has time-inconsistent preferences with a present-bias towards public spending. The government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending. We analyze the optimal fiscal rule when the shocks are persistent. Unlike under i.i.d: shocks, we show that the ex-ante optimal rule is not sequentially optimal, as it provides dynamic incentives. The ex-ante optimal rule exhibits history dependence, with high shocks leading to an erosion of future fiscal discipline compared to low shocks, which lead to the reinstatement of discipline. The implied policy distortions oscillate over time given a sequence of high shocks, and can force the government to accumulate maximal debt and become immiserated in the long run

Good things come to those who wait—Decreasing impatience for health gains and losses

Historically, time preferences are modelled by assuming constant discounting, which implies a constant level of impatience. The prevailing empirical finding, however, is decreasing impatience (DI), meaning that levels of impatience decrease over time. Theoretically, such changes in impatience are crucial to understand behavior and self-control problems. Very few methods exist to measure DI without being restricted to or confounded by certain assumptions about the discounting function or utility curve. One such measure is the recently introduced DI-index, which has been applied to both monetary and health outcomes. The DI-index quantifies the deviation from constant impatience and

Inconsistency in intertemporal choice: a behavioral approach

Purpose - The purpose of this paper is to introduce the main measures of inconsistency in the context of intertemporal choice and to identify the relationships between them (more specifically, the measures by Prelec, Takahashi and Rohde). In effect, Thaler (1981), awarded the Nobel Prize in Economics 2017, argued that when a preference must be expressed between two reward options, some people may reverse their original preference when a significant delay is introduced before the reward is to be received. This anomaly is known as inconsistency in intertemporal choice. Design/methodology/approach - After a revision of the existing literature and by using the methods from mathematical calculus, the authors have derived the logical relationships between the measures presented in this paper. Findings - The main contribution of this paper is the proposal of a novel parameter, the so-defined ratio of two instantaneous discount rates, which the authors call the instantaneous variation rate, which allows relating some other measures of inconsistency, namely the measures described by Prelec and Rohde. A limitation of this paper is the unavailability of empirical information about the inconsistency measures needed to substantiate the theoretical findings. Indeed, this paper has social implications because recent behavioral and neuroeconomic studies have shown the existence of preference reversal or time inconsistency in other areas. The authors’ models can be implemented in these fields in order to better analyze the situations of inconsistency. Originality/value - The originality of this paper lies in the authors’ aim to bring some order to the proposed measures of inconsistency which have arisen as a result of the different approaches adopted

Discounting: A Review of the Basic Economics

I review the justifications given for discounting future benefits relative to present, and distinguish between the pure rate of time preference, or utility discount rate, and the consumption discount rate, also sometimes known as the social rate of discount. I discuss when to choose one or the other, and how to choose a discount rate in a real-world project