TY - CHAP
T1 - Subjective random discounting and intertemporal choice
AU - Higashi, Youichiro
AU - Hyogo, Kazuya
AU - Takeoka, Norio
N1 - Funding Information:
We would like to thank Larry Epstein for his illuminating guidance and constant support. We also thank Árpád Ábrahám, Larry Blume, Atsushi Kajii, Tomoyuki Nakajima, Jean-Marc Tallon, Katsutoshi Wakai, and the audiences of the 2005 JEA Spring Meeting, CETC 2006, and RUD 2006, Hosei, Keio, Kobe, Kyoto, Osaka, and Shiga Universities for useful comments. Detailed suggestions by an anonymous associate editor and two referees led to substantial improvements. Takeoka gratefully acknowledges the financial support by Grant-in-Aid for Scientific Research and MEXT.OPENRESEARCH (2004–2008). All remaining errors are the author’s responsibility.
Publisher Copyright:
© Springer Japan 2016.
Copyright:
Copyright 2016 Elsevier B.V., All rights reserved.
PY - 2016/1/1
Y1 - 2016/1/1
N2 - 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.
AB - 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.
KW - Preference for flexibility
KW - Random discounting
KW - Subjective states
UR - http://www.scopus.com/inward/record.url?scp=84960295358&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=84960295358&partnerID=8YFLogxK
U2 - 10.1007/978-4-431-55402-8_20
DO - 10.1007/978-4-431-55402-8_20
M3 - Chapter
AN - SCOPUS:84960295358
SN - 9784431554011
SP - 523
EP - 571
BT - Behavioral Economics of Preferences, Choices, and Happiness
PB - Springer Japan
ER -