Hyperbolic discounting and the standard model: Eliciting discount functions

Experiments on static intertemporal choice …nd evidence of particularly extreme impatience toward immediate rewards. While this is often taken as support for hyperbolic discounting, it could also arise because the most likely participants in experiments are also those with the most immediate need for money. We conduct a calibration exercise and …nd that the extreme impatience observed in experiments can be accommodated by a standard exponential discounting model with no discounting and expectation of a ‘small’increase in the base consumption level. The calibration uses existing estimates of curvature of utility. Keywords: Experiments, Hyperbolic Discounting, Exponential Discounting, Preference Reversals, Decreasing Impatience, DU anomalies. JEL classi…cation number: D11 Dept of Economics, Boston University, 270 Bay State Road, Boston MA 02215. Email: [email protected]. I would like to thank Attila Ambrus, Alberto Bisin, Larry Epstein, David Laibson, Bart Lipman, Alessandro Lizzeri, Klaus Nehring, Efe Ok, Parag Pathak, Larry Samuelson and the Associate Editor for useful comments. Financial support from the NSF (grant SES-0822927) is gratefully acknowledged. The usual disclaimer applies.