Subjective random discounting and intertemporal choice

Youichirou Higashi, Kazuya Hyogo, Norio Takeoka

Research output: Chapter in Book/Report/Conference proceedingChapter

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 languageEnglish
Title of host publicationBehavioral Economics of Preferences, Choices, and Happiness
PublisherSpringer Japan
Pages523-571
Number of pages49
ISBN (Print)9784431554028, 9784431554011
DOIs
Publication statusPublished - 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)

Fingerprint Dive into the research topics of 'Subjective random discounting and intertemporal choice'. Together they form a unique fingerprint.

  • Cite this

    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