This paper studies a continuous-time, nite-horizon contracting problem with renegotiationand dynamic inconsistency arising from non-exponential discounting. Theproblem is formulated as a dynamic game played among the agent, the principal andtheir respective future "selves", each with their own...

This paper argues that observations of non-stationary choice behavior need not necessarily imply specific properties of the individual's discount function. As we show, the observed quot;anomaliesquot; in intertemporal choice can alternatively be explained by an individual's perception of the...

Several discounted utility anomalies are explained as rational choices of an agent with standard preferences and stochastic income. We define the term structure of absolute risk aversion and demonstrate that the gain-loss asymmetry is observed for small gains and losses and a general utility...

The real options approach is used to explain discounted utility anomalies as artifacts of the optimizing behavior of an individual with standard preferences, who perceives the utility from consumption in the future as uncertain. For this individual,waiting is valuable because uncertainty is...

We explain essentially all known discounted utility anomalies as artefacts of the optimizing behavior of an individual with a time-separable utility function, who perceives a good as a source of a stochastic consumption stream, and believes that she can wait for an optimal moment to buy or sell...

The paper presents empirical results on the discounting of delayed payoffs which show that: (1) the best approximation of the discounting process is a hyperbolic function, (2) (both animals and humans) can reverse their preferences in time. The article presents theoretical conditions on the...

The paper develops an axiomatic framework for rational decision making. The von Neumann-Morgenstern axioms give rise to a richer risk attitude than that captured in the standard discounted expected utility model. I derive three models that permit a more comprehensive risk evaluation. These...

Addiction has attracted considerable attention in health and behavioral economics, and economists have attempted to understand addiction from the viewpoint of decision making over time. This paper investigates whether two time preference parameters can successfully predict smoking status,...

We discuss the selection of the socially efficient discount rate for public investment projects that entail costs and benefits in the far distant future. We show that the discount rate should be a decreasing function of time horizon under some specific restrictions on the distribution of...

We discuss the selection of the socially optimal discount rate for public investment projects that entail costs and benefits in the very long run. More specifically, we examine in an expected utility framework how the uncertainty on the growth rate of the GNP per head affects this rate. Under...