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Axiomatization and Measurement of Quasi-Hyperbolic Discounting

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  • José Luis Montiel Olea
  • Tomasz Strzalecki

Abstract

This article provides an axiomatic characterization of quasi-hyperbolic discounting and a more general class of semi-hyperbolic preferences. We impose consistency restrictions directly on the intertemporal trade-offs by relying on what we call “annuity compensations.” Our axiomatization leads naturally to an experimental design that disentangles discounting from the elasticity of intertemporal substitution. In a pilot experiment we use the partial identification approach to estimate bounds for the distributions of discount factors in the subject pool. Consistent with previous studies, we find evidence for both present and future bias. JEL Codes: C10, C99, D03, D90.

Suggested Citation

  • José Luis Montiel Olea & Tomasz Strzalecki, 2014. "Axiomatization and Measurement of Quasi-Hyperbolic Discounting," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 129(3), pages 1449-1499.
    • Handle: RePEc:oup:qjecon:v:129:y:2014:i:3:p:1449-1499
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    File URL: http://hdl.handle.net/10.1093/qje/qju017
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    JEL classification:

    • C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
    • C99 - Mathematical and Quantitative Methods - - Design of Experiments - - - Other
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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