Hyperbolic discounting may be time consistent

Journal article: Using dynamic programming methodology, the paper analyzes the most general conditions for an additive utility functional to represent time consistent preferences. It challenges the conventional wisdom of the domain, which, following Strotz(1956), assume that only exponential discounting is compatible with time consistent behavior. The paper gives some examples of special time consistent hyperbolic discount functions and also discuss the relation between time consistency and stationarity.

Author(s)

Nicolas Drouhin

Journal
  • Economics Bulletin
Date of publication
  • 2009
Keywords JEL
D14 D9
Keywords
  • Intertemporal choice
  • Consumption and saving
  • Time consistency
  • Time discounting
  • Exponential discounting
  • Hyperbolic discounting
Pages
  • 2549-2555
Version
  • 1
Volume
  • 29