hyperbolic discounting

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An assumption on the rate of time preference that reflects the observed bias towards present rewards, in the form of the hyperbolic discount function. In contrast to standard exponential discounting, with hyperbolic discounting the discount rate between any two successive periods declines as the time horizon increases, so that the elasticity of intertemporal substitution depends on the timing of the change in the intertemporal price. A frequently used version of the generalized hyperbolic discount function is the so-called quasi-hyperbolic discount factor; in particular, lifetime utility is modelled aswith 0 < δ < 1 and 0 < β ≤ 1, also referred to as beta-delta preferences. Here β is the degree of self-control which reduces the present bias, and δ is the intertemporal discount factor; β = 1 is the special case of exponential discounting.

Subjects: Economics.

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