From Anticipations to Present Bias: A Theory of Forward-Looking Preferences

70 Pages Posted: 2 Nov 2014

See all articles by Simone Galperti

Simone Galperti

University of California, San Diego (UCSD) - Department of Economics

Bruno H. Strulovici

Northwestern University

Date Written: October 31, 2014

Abstract

How do future well-being and preferences affect the current well-being and preferences of forward-looking agents? Our theory explores this question, producing a new class of tractable models which capture and explain phenomena such as present bias, consumption interdependence, sign effects in discounting, and the desire to space out consumption. Agents manifest impatience toward the current period, but not necessarily toward the earlier of two future periods. The theory characterizes the well-known quasi-hyperbolic discounting model as the unique model of our class which does not display consumption interdependence. Finally, it provides a rigorous approach for analyzing the welfare of agents with time-inconsistent preferences.

Keywords: time inconsistency, forward-looking preferences, hyperbolic discounting, beta-delta discounting, anticipations, welfare criterion

JEL Classification: D01, D60, D90

Suggested Citation

Galperti, Simone and Strulovici, Bruno H., From Anticipations to Present Bias: A Theory of Forward-Looking Preferences (October 31, 2014). Available at SSRN: https://ssrn.com/abstract=2517742 or http://dx.doi.org/10.2139/ssrn.2517742

Simone Galperti (Contact Author)

University of California, San Diego (UCSD) - Department of Economics ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

Bruno H. Strulovici

Northwestern University ( email )

2001 Sheridan Road
Evanston, IL 60208
United States

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