Golden Eggs and Hyperbolic Discounting

@article{citeulike:1353799, abstract = {Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing \"too much\" liquidity.}, author = {Laibson, David }, citeulike-article-id = {1353799}, comment = {oh, that's kinda cool - suggesting that discount functions are hyperbolic makes a lot more sense. or a lot less nonsense than exponential ones, anyway.}, journal = {The Quarterly Journal of Economics}, keywords = {ethics, parsimony, rationality, uncertainty}, number = {2}, pages = {443--477}, posted-at = {2007-06-01 04:11:13}, priority = {4}, title = {Golden Eggs and Hyperbolic Discounting}, url = {http://www.jstor.org/stable/2951242}, volume = {112}, year = {1997} }

TY - JOUR ID - citeulike:1353799 L3 - citeulike-article-id:1353799 TI - Golden Eggs and Hyperbolic Discounting JF - The Quarterly Journal of Economics VL - 112 IS - 2 SP - 443 EP - 477 N2 - Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing "too much" liquidity. KW - ethics KW - parsimony KW - rationality KW - uncertainty N1 - oh, that's kinda cool - suggesting that discount functions are hyperbolic makes a lot more sense. or a lot less nonsense than exponential ones, anyway. AU - Laibson, David PY - 1997/// UR - http://www.jstor.org/stable/2951242 ER -