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Journal of Economic Literature: Vol. 40 No. 2 (June 2002)

JEL Volume. 40, Issue 2 | Next Article

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Time Discounting and Time Preference: A Critical Review

Article Citation

Frederick, Shane, George Loewenstein, and Ted O'Donoghue. 2002. "Time Discounting and Time Preference: A Critical Review." The Journal of Economic Literature, 40(2): 351-401.

DOI: 10.1257/002205102320161311

Abstract

This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

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Authors

Frederick, Shane (Sloan School of Management, Massachusetts Institute of Technology)
Loewenstein, George (Department of Social and Decision Sciences, Carnegie Mellon University)
O'Donoghue, Ted (Department of Economics, Cornell University)