Theory Of Intertemporal Choice Research Articles

Macro fundamentals and the resurgence of the Feldstein–Horioka puzzle in Europe

This paper discusses the resurgence of the Feldstein–Horioka puzzle after the global financial crisis within the European space. Revisiting the theory of intertemporal choice, this paper suggests that the deterioration of macroeconomic fundamentals that favor capital flows from richer to poorer economies can lead investment and savings to correlate across countries even without frictions to capital mobility. I test this hypothesis against a data set of 12 European economies spanning since the inception of the Maastricht treaty and ending immediately before the start of the Covid-19 pandemic. I find that the investment-savings correlation is generally low both across and within open economies, aligning with the theoretical stylized fact. However, this can be jeopardized when low-income economies accumulate large net stocks of foreign liabilities coupled with sluggish prospects for productivity growth. Ultimately, if investment and savings are not managed in line with macro fundamentals, foreign investors eventually impose a premium on new liabilities, raising the cost of financing investment with foreign funds and leading the correlation between investment and savings to rise both across and within countries.

An Analytic Network Process to Support Financial Decision-Making in the Context of Behavioural Finance

Following the financial crisis of the last decade and the increasing complexity of financial products, the European Union has introduced investor protection tools that require professionals to carry out a client profiling process. The aim is to offer products that are in line with the characteristics of the individual. The classes of variables for comprehensive profiling are obtained by matching the elements proposed by the Markets in Financial Instruments Directive and studies of classical finance. However, behavioural finance studies, which emphasise the importance of behavioural attitudes, are not clearly considered in this structured profiling. The present paper discusses the implementation of an analytic network process to support financial decision-making in a behavioural context, combining regulatory guidance and qualitative and quantitative evidence from the literature. The Kersey Temperament Model is used as the behavioural model to construct the network cluster that incorporates personality into the valuation. Uncertainty management is incorporated through recent studies in the context of intertemporal choice theory. The functionality of the network is verified through a case study, where two alternatives with different characteristics are considered to meet the same investment objective. The present approach proves how the generated structure can provide strong support for financial decision-making.

Addictive Incentive Mechanism in Crowdsensing From the Perspective of Behavioral Economics

In mobile crowdsensing, many mobile devices are collectively used to complete complex sensing tasks. Most tasks require users to consume resources to ensure continuous performance over multiple periods of time. Therefore, it is important to incentivize enough users to continuously participate in the tasks. However, there are two issues with current incentive mechanisms. First, most studies are designed for maximizing the revenue of a single round of tasks rather than long-term incentives. Second, although some studies use historical data to design mechanisms for long-term operation, the law of diminishing marginal utility is not considered; thus, the actual performance is lower than expected. In this study, the concepts of capital deposit and intertemporal choice from behavioral economics are introduced to explain the principle of addiction, which is a representative long-term incentive. Consequently, an Addiction Incentive Mechanism (AIM) is proposed. It influences the utility and demand functions of users by accelerating the accumulation of capital deposits and promoting users to become addicted to cooperative behavior. It also mitigates the effect of diminishing marginal utility through intertemporal choice theory to maintain user engagement. Simulations demonstrate that AIM improves participation and repetition rates compared with the state-of-the-art mechanisms.

Do Timelines Matter? An Empirical Study Based on Reward-Based Crowdfunding

This paper focuses on the effect of timelines in reward-based crowdfunding on its performance. Based on intertemporal choice theory, we adopted temporal framing as a theoretical lens and theorized and tested the effect of temporal framing set by founders in crowdfunding projects on their performance through its influence on consumer willingness to provide funds. We considered three temporal framing variables—temporal frequency, temporal vagueness, and temporal distance—which reflect the number of temporal cues, ambiguity or incompleteness of temporal cues, and the period from the end of a project to the estimated delivery time, respectively. We examined a sample of 20,604 technology reward-based crowdfunding projects on Kickstarter from 2009 to 2018, which revealed that the three variables individually and interactively influence project performance. We found that temporal frequency was positively related to project performance, whereas temporal vagueness and temporal distance were negatively related. Moreover, the interaction terms between temporal frequency and the other two temporal variables had negative impacts on project performance. These findings provide a deeper understanding of crowdfunding and reveal that temporal framing set by founders may affect the performance of crowdfunding projects.

What do self-reports of wellbeing say about life-cycle theory and policy?

I respond to Atkinson's plea to revive welfare economics, and to consider alternative ethical frameworks when making policy recommendations. I examine a measure of self-reported evaluative wellbeing, the Cantril Ladder, and use data from Gallup to examine wellbeing over the life-cycle. I assess the validity of the measure, and show that it is hard to reconcile with familiar theories of intertemporal choice. I find a worldwide optimism about the future; in spite of repeated evidence to the contrary, people consistently but irrationally predict they will be better off five years from now. The gap between future and current wellbeing diminishes with age, and in rich countries, is negative among the elderly. I also use the measure to think about income transfers by age and sex. Policies that give priority those with low incomes favor the young and the old, while utilitarian policies favor the middle aged, and men over women.

On Multiple Discount Rates

We propose a theory of intertemporal choice that is robust to specific assumptions on the discount rate. One class of models requires that one utility stream be chosen over another if and only if its discounted value is higher for all discount factors in a set. Another model focuses on an average discount factor. Yet another model is pessimistic, and evaluates a flow by the lowest available discounted value.

Rats value time differently on equivalent foraging and delay-discounting tasks.

All organisms have to consider consequences that vary through time. Theories explaining how animals handle intertemporal choice include delay-discounting models, in which the value of future rewards is discounted by the delay until receipt, and foraging models, which predict that decision-makers maximize rate of reward. We measured the behavior of rats on a 2-option delay-discounting task and a stay/go foraging task that were equivalent for rate of reward and physical demand. Despite the highly shared features of the tasks, rats were willing to wait much longer on the foraging task than on the delay-discounting task. Moreover, choice performance by rats was less optimal in terms of total reward received on the foraging task compared to the delay-discounting task. We applied a suite of intertemporal choice models to the data but found that we needed a novel model incorporating interactions of decision-making systems to successfully explain behavior. Our findings (a) highlight the importance of factors that historically have been seen as irrelevant and (b) indicate the inadequacy of current general theories of intertemporal choice. (PsycINFO Database Record

A theory of average growth rate indices

This paper develops an axiomatic theory of an economic variable average growth rate (average rate of change) measurement. The obtained structures generalize the conventional measures for average rate of growth (such as the difference quotient, and the continuously compounded growth rate) to an arbitrary domain of the underlying variable and comprise various models of growth. These structures can be described with the help of intertemporal choice theory by means of parametric families of time preference relations on the “prize-time” space with a parameter representing the subjective discount rate.

Intertemporal choice with liquidity constraints: Theory and experiment

Since Thaler (1981), we have lived with the uncomfortable stylized fact that many humans choose strictly dominated actions in intertemporal choice experiments. We designed an experiment to probe the reasons for the apparently suboptimal behavior, and we find that the classic Fisher (1930) intertemporal choice theory with perceived transaction costs and liquidity constraints is perfectly consistent with our experimental data, whereas hyperbolic discounting is not.

Tempospect Theory of Intertemporal Choice

Anomalies in intertemporal choice (e.g. hyperbolic discounting, subadditive discounting, a sign effect, a magnitude effect, and a delay-speedup asymmetry) have been investigated in neuroeconomics and behavioral neuroeconomics. In this study we propose a “tempospect” theory of intertemporal choice which can account for these anomalies in intertemporal choice. The key features of the present theory are: 1) decision over time is made with psychological time; and 2) psychological time is determined by a change in delay until receipt (i.e., positive or negative time-interval between options); 3) psychological time is less sensitive to a decrease in delay in comparison to an increase in delay; and 4) psychological time is influenced by the sign and magnitude of the delayed outcomes. Implications of the present theory for neuroeconomics are discussed.

The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets.

Languages differ widely in the ways they encode time. I test the hypothesis that the languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.

Save or Borrow – What Determines Russian Households’ Financial Strategies?

This paper examines what influences Russian households‟ decisions to save and borrow. We use the 2008 data from the 17th round of the Russia Longitudinal Monitoring Survey (RLMS-HSE). Our results show that the determinants of saving and borrowing are not only those suggested by economic theory but also include psychological and sociological considerations: smarter respondents, who are satisfied with their lives and inclined to help other people, are more likely to save. Those who enjoy stable or improving financial conditions and/or are satisfied with them are more likely to save and less likely to borrow. Financial literacy, a factor cited by institutional theory as positive for both saving and borrowing from banks, lost its significance at the onset of the financial crisis. Household income, suggested by economic theory as a basis for choosing a financial strategy, was found to have much less influence on savings and to have a positive influence on borrowing, confirming the rationing theory rather than inter-temporal choice theory. Surprisingly, the fear of job loss does not make people save more, contrary to the precautionary motive.

The Effect of Language on Economic Behavior: Evidence from Savings Rates, Health Behaviors, and Retirement Assets

Languages differ widely in the ways they encode time. I test the hypothesis that languages that grammatically associate the future and the present, foster future-oriented behavior. This prediction arises naturally when well-documented effects of language structure are merged with models of intertemporal choice. Empirically, I find that speakers of such languages: save more, retire with more wealth, smoke less, practice safer sex, and are less obese. This holds both across countries and within countries when comparing demographically similar native households. The evidence does not support the most obvious forms of common causation. I discuss implications for theories of intertemporal choice.

Obstacles to patient education in chronic diseases: A trans-theoretical analysis

ObjectiveThe aim of this article is to discuss the background and the consequences of preference on short-term rewards by individuals, which represents an obstacle to any educational programme aimed to prevent long-term complications of chronic diseases such as diabetes, hypertension or obesity. MethodsWe used a trans-theoretical analysis referring to three theories: (1) Construal Level Theory (Trope and Liberman) suggests that the human mind tends to assign remote events as “high-level” criteria, abstraction, in particular, and to proximal events as “low-level” criteria, a concrete description, in particular. (2) Intertemporal Choice Theory (Ainslie) explains why people often prefer short-term small rewards over long-term large rewards. (3) The theory developed by Parfit suggests that the personal identity of human beings is made of a succession of multiple individuals, in time, who find their identity by the fact that there is a connectedness between them. Since this connectedness is weaker for prolonged periods of time, this Personal Identity Theory may explain why we may be less interested in our future. ResultsIn the minds of people who are supposed to benefit from such programmes, there may be a striking contrast between the objectives of preventive medicine (typically a high-level construal), which represents an abstract and long-term concept (e.g. “to avoid complications”), and that of the representation of inaction, a low-level construal which is by contrast immediate and concrete and can be readily imagined (e.g. a nap in front of the TV set). ConclusionThe very concept of prevention entails features that jeopardize the efficiency of educational programmes used for its implementation. Practice implications(1) In chronic diseases, designing programmes proposing concrete and short-term preventive measures may represent a way to overcome this obstacle. (2) Habit may be used to reinforce connectedness which forms personal identity. (3) Thus, taking into account this temporal dimension of educational programmes is essential.

A General Theory of Time Discounting: The Reference-Time Theory of Intertemporal Choice

We develop a general theory of intertemporal choice: the reference-time theory, RT. RT is a synthesis of ideas from the generalized hyperbolic model (Loewenstein and Prelec 1992), the quasi-hyperbolic model (Phelps and Pollak 1968, Laibson 1997) and subadditivity of time discounting (Roelofsma and Read 2000, Read 2001 and Scholten and Read 2006a). These models are extended to allow for (i) reference

A note on the Loewenstein–Prelec theory of intertemporal choice

In one of the major contributions to behavioral economics, Loewenstein and Prelec [Loewenstein, G., Prelec, D., 1992. Anomalies in intertemporal choice: evidence and an interpretation. The Quarterly Journal of Economics 107, 573–597] set the foundations for the behavioral approach to decision making over time. We correct a number of errors in Loewenstein and Prelec (1992). Furthermore, we provide a correct, more direct and simpler derivation of their generalized hyperbolic discounting formula that has formed the basis of much recent work on temporal choice.

The Development of a Theory of Rational Intertemporal Choice

L’objectiu d’aquest article és descriure l’evolució d’una teoria molt dinàmica: la teoria de l’elecció intertemporal. Es presenten les primeres teoritzacions econòmiques sobre la presa de decisions intertemporal, i s’exposa com desemboquen en el famós model d’utilitat descomptada de Samuelson. Seguidament, es descriu com i per què la utilitat descomptada es va convertir en l’enfocament estàndard de l’elecció intertemporal en l’economia, gràcies a la pretesa validesa positiva i normativa de la consistència dinàmica. A continuació, es revisa com l’extensió dels experiments va desafiar les hipòtesis d’utilitat descomptada i de consistència dinàmica, i va fer de l’elecció intertemporal un autèntic camp d’investigació interdisciplinari. Finalment, es discuteixen els fonaments de la consistència dinàmica i es prova que aquesta no està justificada ni descriptivament ni normativament com un axioma de l’elecció racional intertemporal. També es mostra com, fins no fa gaire, el debat sobre la consistència dinàmica ha produït un efecte d’«enlluernament» que ha impedit advertir la importància d’altres anomalies fonamentals en la utilitat descomptada. I aquest efecte pot considerar-se un efecte lateral més de l’excessiu paper atorgat a la consistència dinàmica durant aquells anys. Es conclou, doncs, que la consistència dinàmica ha actuat com una camisa de força invisible que ha obstruït el desenvolupament de la teoria de l’elecció intertemporal, i que només eradicant-la aquest camp d’investigació podrà assolir en el futur una comprensió satisfactòria de la presa de decisions humana.

Time discounting over the lifespan

Several theories of intertemporal choice predict systematic age differences in the rate at which people discount the future. Different theories, however, predict different patterns: one predicts that discounting will decrease over the lifespan, so that young people will discount more than the middle aged or elderly, another suggests it will increase over the lifespan, and yet another suggests that the middle-aged will discount less than either the young or the old. We conduct a study testing these predictions. 123 respondents between the ages of 19 and 89 made a large number of time discounting decisions on both computerized and paper-and-pencil questionnaires. The results suppported the view that older people discount more than younger ones, and that middle aged people discount less than either group. This finding appears to contrast with earlier work ( Green, Fry, & Myerson, 1994) but, as we show, our results are remarkably congruent with that study. We conclude by considering whether our results can be reconciled with the fact that young people commit more apparently impulsive acts than do the elderly.

Intertemporal Choice and the Cross-Sectional Variance of Marginal Utility

The theory of intertemporal choice predicts that the cross-sectional variance of the marginal utility of consumption is equal to its own lag plus a constant and a random component. Using general preference specifications and some assumptions about the nature of the random component, we provide an explicit test of this hypothesis. Our approach circumvents the necessity to identify a pure age profile of the cross-sectional variance of consumption and yields a well-specified statistical test. This test is applied to data from the United States, the United Kingdom, and Italy. The results are remarkably consistent with the restrictions implied by the theory of intertemporal consumption choices.

Hyperbolic temporal discounting in social drinkers and problem drinkers.

Two studies compared participants, distinguished by their typical alcohol consumption, on the degree to which they discounted the value of delayed, hypothetical amounts of money. Heavy social drinkers in Study 1 and problem drinkers in Study 2 both showed greater temporal discounting than light social drinkers; this difference was stronger in Study 2. Both studies found that a hyperbolic function described temporal discounting more accurately than an exponential function. These results are consistent with extending behavioral theories of intertemporal choice to characterize the determinants of alcohol consumption. The discounting differences also are consistent with more general behavioral economic and economic theories of addiction, although the hyperbolic functional form is inconsistent with the exponential discounting function in economic theory. The drinker groups also differed on impulsiveness and time orientation questionnaires, with light drinkers being less impulsive and more future oriented; however, these measures were not strongly correlated with the measure of temporal discounting. Language: en