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An Extension of Quasi-hyperbolic Discounting to Continuous Time

Pan, J.; Webb, C.S.; Zank, H.

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Authors

C.S. Webb

H. Zank



Abstract

Two-Stage Exponential (TSE) discounting, the model developed here, generalises exponential discounting in a parsimonious way. It can be seen as an extension of Quasi-Hyperbolic discounting to continuous time. A TSE discounter has a constant rate of time preference before and after some threshold time; the switch point. If the switch point is expressed in calendar time, TSE discounting captures time consistent behaviour. If it is expressed in waiting time, TSE discounting captures time invariant behaviour. We provide preference foundations for all cases, showing how the switch point is derived endogenously from behaviour. We apply each case to Rubinstein's infinite-horizon, alternating-offers bargaining model.

Citation

Pan, J., Webb, C., & Zank, H. (2015). An Extension of Quasi-hyperbolic Discounting to Continuous Time. Games and Economic Behavior, 89, 43-55. https://doi.org/10.1016/j.geb.2014.11.003

Journal Article Type Article
Online Publication Date Dec 8, 2014
Publication Date Jan 1, 2015
Deposit Date Dec 15, 2015
Publicly Available Date Jul 1, 2016
Journal Games and Economic Behavior
Print ISSN 0899-8256
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 89
Pages 43-55
DOI https://doi.org/10.1016/j.geb.2014.11.003
Keywords Discounting, Present bias, Decreasing impatience, Bargaining.
Public URL https://durham-repository.worktribe.com/output/1396204

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