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An Investigation of Time Inconsistency

Author

Listed:
  • Serdar Sayman

    (College of Administrative Sciences and Economics, Koç University, Istanbul 34450, Turkey)

  • Ayse Öncüler

    (ESSEC Business School, 95021 Cergy, France)

Abstract

Preference between two future outcomes may change over time--a phenomenon labeled as time inconsistency. The term "time inconsistency" is usually used to refer to cases in which a larger-later outcome is preferred over a smaller-sooner one when both are delayed by some time, but then with the passage of time a preference switches to the smaller-sooner outcome. The current paper presents four empirical studies showing that time inconsistency in the other direction is also possible: A person may prefer the smaller-sooner outcome when both options are in the future, but decide to wait for the larger-later one when the smaller option becomes immediately available. We find that such "reverse time inconsistency" is more likely to be observed when the delays to and between the two outcomes are short (up to a week). We propose that reverse time inconsistency may be associated with a reversed-S shape discount function, and provide evidence that such a discount function captures part of the variation in intertemporal preferences.

Suggested Citation

  • Serdar Sayman & Ayse Öncüler, 2009. "An Investigation of Time Inconsistency," Management Science, INFORMS, vol. 55(3), pages 470-482, March.
    • Handle: RePEc:inm:ormnsc:v:55:y:2009:i:3:p:470-482
    DOI: 10.1287/mnsc.1080.0942
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    References listed on IDEAS

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