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Intertemporal choice with different short-term and long-term discount factors

Blavatskyy, P. (2015) Intertemporal choice with different short-term and long-term discount factors. Journal of Mathematical Economics, 61 . pp. 139-143.

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This paper proposes a new axiomatic model of intertemporal choice that allows for dynamic inconsistency. We weaken the classical assumption of stationarity into two related axioms: stationarity in the short-term and stationarity in the long-term. We obtain a model with two independent discount factors, which is flexible enough to capture different time preferences, including a greater impatience for more immediate outcomes (when a long-term discount factor exceeds a compounded short-term discount factor). Our proposed model can accommodate some experimental results that cannot be rationalized by other existing models of dynamic inconsistency (such as quasi-hyperbolic discounting and generalized hyperbolic discounting).

Publication Type: Journal Article
Murdoch Affiliation: School of Management and Governance
Publisher: Elsevier
Copyright: Elsevier
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