Hyperbolic Discount Functions, Undersaving, and Savings Policy

  title={Hyperbolic Discount Functions, Undersaving, and Savings Policy},
  author={David I. Laibson},
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 consumers. I identify two ways in which this economy can be distinguished from an exponential economy. First, hyperbolic discounting predicts the empirical regularity that the elasticity of intertemporal substitution is less than the inverse of the coefficient of relative risk aversion. Second, hyperbolic… 

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