Microfoundations of Discounting

  title={Microfoundations of Discounting},
  author={A. Adamou and Y. Berman and Diomides Mavroyiannis and O. Peters},
  journal={Microeconomics: Intertemporal Consumer Choice & Savings eJournal},
An important question in economics is how people choose between different payments in the future. The classical normative model predicts that a decision maker discounts a later payment relative to an earlier one by an exponential function of the time between them. Descriptive models use non-exponential functions to fit observed behavioral phenomena, such as preference reversal. Here we propose a model of discounting, consistent with standard axioms of choice, in which decision makers maximize… Expand
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