Golden Eggs and Hyperbolic Discounting

Clicks: 6
ID: 289392
1997
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Abstract
Hyperbolic discount functions induce dynamically inconsistent preferences, implying a motive for consumers to constrain their own future choices. This paper analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received. The model predicts that consumption tracks income, and the model explains why consumers have asset-specific marginal propensities to consume. The model suggests that financial innovation may have caused the ongoing decline in U. S. savings rates, since financial innovation increases liquidity, eliminating commitment opportunities. Finally, the model implies that financial market innovation may reduce welfare by providing "too much" liquidity.
Reference Key
openalex_W2118052532 Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors David Laibson
Journal the quarterly journal of economics
Year 1997
DOI
10.1162/003355397555253
URL
https://doi.org/10.1162/003355397555253
Keywords Keywords not found

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