Subjective random discounting and intertemporal choice

Youichirou Higashi; Kazuya Hyogo; Norio Takeoka

doi:10.1007/978-4-431-55402-8_20

Subjective random discounting and intertemporal choice

Youichirou Higashi, Kazuya Hyogo, Norio Takeoka

Research output: Chapter in Book/Report/Conference proceeding › Chapter

Abstract

This chapter provides an axiomatic foundation for a particular type of preference shock model called the random discounting representation where a decision maker believes that her discount factors change randomly over time. For this purpose, we formulate an infinite horizon extension of Dekel, Lipman, and Rustichini (Econometrica 69:891–934, 2001), and identify the behavior that reduces all subjective uncertainties to those about future discount factors. We also show uniqueness of subjective belief about discount factors. Moreover, a behavioral comparison about preference for flexibility characterizes the condition that one’s subjective belief second-order stochastically dominates the other. Finally, the resulting model is applied to a consumption-savings problem.

Original language	English
Title of host publication	Behavioral Economics of Preferences, Choices, and Happiness
Publisher	Springer Japan
Pages	523-571
Number of pages	49
ISBN (Print)	9784431554028, 9784431554011
DOIs	https://doi.org/10.1007/978-4-431-55402-8_20
Publication status	Published - Jan 1 2016

Keywords

Preference for flexibility
Random discounting
Subjective states

ASJC Scopus subject areas

Economics, Econometrics and Finance(all)
Business, Management and Accounting(all)
Psychology(all)

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10.1007/978-4-431-55402-8_20

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Higashi, Y., Hyogo, K., & Takeoka, N. (2016). Subjective random discounting and intertemporal choice. In Behavioral Economics of Preferences, Choices, and Happiness (pp. 523-571). Springer Japan. https://doi.org/10.1007/978-4-431-55402-8_20

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