Strotz Meets Allais: Diminishing Impatience and the Certainty Effect
Halevy, Yoram. 2008. "Strotz Meets Allais: Diminishing Impatience and the Certainty Effect."
American Economic Review,
Decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward. This work argues that diminishing impatience originates from the distinction between the certain present and the risky future. A simple functional representation of preferences, exhibiting time inconsistency when the future is uncertain, is derived. Experimental evidence, which is inconsistent with other formulations that account for diminishing impatience, supports the proposed approach. The new theory uncovers a tight relation between diminishing impatience and well-known behavioral regularities in choice under risk and uncertainty.
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Halevy, Yoram (U British Columbia)
D81: Criteria for Decision-Making under Risk and Uncertainty
D12: Consumer Economics: Empirical Analysis