Optimal Discounting
Econometrica · 2022 · Volume 90 · Issue 2
Abstract
The agent is modeled as a current self that optimally incurs a cognitive cost of empathizing with future selves. The model unifies well-known experimental and empirical findings in intertemporal choice and enriches the multiple selves model with a notion of self-control. The defining feature of the model is magnitude-decreasing impatience: greater patience toward larger rewards. Two behavioral definitions of magnitude-decreasing impatience are provided and the model is characterized under each of them.
Keywords
Time preference, magnitude effect, multiple selves, cognitive optimization
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