Golden Eggs and Hyperbolic Discounting

@article{Laibson1997GoldenEA,
  title={Golden Eggs and Hyperbolic Discounting},
  author={David I. Laibson},
  journal={Quarterly Journal of Economics},
  year={1997},
  volume={112},
  pages={443-478}
}
  • David I. Laibson
  • Published 1 May 1997
  • Economics, Business
  • Quarterly Journal of Economics
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… 

Figures and Tables from this paper

Hyperbolic Discount Functions, Undersaving, and Savings Policy
Studies of animal and human behavior suggest that discount functions are approximately hyperbolic (Ainslie, 1992). I analyze an economy with complete markets which is populated by hyperbolic
Quasi-Hyperbolic Discounting under Recursive Utility and Consumption-Investment Decisions
This paper examines an Epstein-Zin recursive utility with quasi-hyperbolic discounting in continuous time. I directly define the utility process and consider a Merton's optimal consumption-investment
Consumption and portfolio rules whit stochastic hyperbolic discounting
We extend the classic Merton (1969, 1971) problem that investigates the joint consumption-savings and portfolio-selection problem under capital risk by assuming sophisticated but time-inconsistent
Dynamic Choices of Hyperbolic Consumers
Laboratory and field studies of time preference find that discount rates are much greater in the short-run than in the long-run. Hyperbolic discount functions capture this property. This paper solves
Hyperbolic Discounting and the Sustainability of Rotational Savings Arrangements
People across the developing world join rotational savings and credit associations (roscas) to fund repeated purchases of nondivisible goods. When the scope for punishment is weak, there is a natural
Incomplete Markets and Hyperbolic Discounting
A growing number of empirical researchers are finding evidence of hyperbolic discounting in their investigations on the nature of preferences for distributing consumption over time. This article
Hyperbolic Discounting and Uniform Savings Floors
I develop a general equilibrium model populated by agents with varying degrees of hyperbolic discounting who vote for a uniform savings floor. Although partial equilibrium intuition suggests that all
Hyperbolic discounting and life-cycle portfolio choice*
Abstract This paper studies how hyperbolic discounting affects stock market participation, asset allocation, and saving decisions over the life cycle in an economy with Epstein–Zin preferences.
...
...

References

SHOWING 1-10 OF 69 REFERENCES
SELF-CONTROL AND THE THEORY OF CONSUMPTION
To study the behavior of agents who are susceptible to temptation in infinite horizon consumption problems under uncertainty, we define and characterize dynamic self-control (DSC) preferences. DSC
Union contracts and the life-cycle/permanent-income hypothesis
This paper isolates households in the PSID whose heads can be matched to particular long-term union contracts with high confidence. The author uses use published information on these contracts to
Consumption and Liquidity Constraints: An Empirical Investigation
  • S. Zeldes
  • Economics
    Journal of Political Economy
  • 1989
Several recent studies have suggested that empirical rejections of the permanent income/life cycle model might be due to the existence of liquidity constraints. This paper tests the permanent income
How does Future Income Affect Current Consumption
This paper tests a straightforward implication of the basic Life Cycle model of consumption: that current consumption depends on expected lifetime income. The paper projects future income for a panel
Anomalies in Intertemporal Choice: Evidence and an Interpretation
Research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility (EU) anomalies—behaviors that violate the expected utility axioms. The
Consumption Over the Life Cycle
This paper employs cohort technique and Consumer Expenditure Survey data to construct average age-profiles of consumption and income over the working lives of typical households across different
Consumption Growth Parallels Income Growth: Some New Evidence
This paper argues that the versions of both permanent income and life-cycle theories which have recently become fashionable are inconsistent with the grossest features of cross-country and
The Joint Consumption/Asset Demand Decision: A Case Study in Robust Estimation
The paper uses a previously unexploited data set -- the Michigan Survey of Consumer Finances -- to ask whether the finding that consumption tracks current income more closely than is consistent with
The Buffer-Stock Theory of Saving: Some Macroeconomic Evidence
As I WRITE, the U.S. economy remains mired in the slowest recovery from any recession in the postwar period. Consumer confidence and consumption spending, in particular, have been exceptionally weak,
Ramsey Meets Laibson in the Neoclassical Growth Model
The neoclassical growth model is modified to include a variable rate of time preference. With no commitment ability and log utility, the equilibrium features a constant effective rate of time
...
...