A theory of (relative) discounting

Efe A. Ok, Yusufcan Masatlioglu

    Research output: Contribution to journalArticlepeer-review

    Abstract

    We derive a representation theorem for time preferences (on the prize-time space) which identifies a novel notion of relative discounting as the key ingredient. This representation covers a variety of time preference models, including the standard exponential and hyperbolic discounting models and certain non-transitive time preferences, such as the similarity-based and subadditive discounting models. Our axiomatic work thus unifies a number of seemingly disparate time preference structures, thereby providing a tractable mathematical format that allows for investigating certain economic environments without subscribing to a particular time preference model. This point is illustrated by means of an application to sequential bargaining theory.

    Original languageEnglish (US)
    Pages (from-to)214-245
    Number of pages32
    JournalJournal of Economic Theory
    Volume137
    Issue number1
    DOIs
    StatePublished - Nov 2007

    Keywords

    • Bargaining
    • Hyperbolic discounting
    • Non-transitive preferences
    • Present bias
    • Stationarity
    • Time consistency
    • Time preferences

    ASJC Scopus subject areas

    • Economics and Econometrics

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