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Age-Induced Acceleration of Time: Implications for Intertemporal Choice

University of Arizona Department of Economics Working Paper No. 15-02

20 Pages Posted: 1 Mar 2015 Last revised: 30 Apr 2016

Derek Lemoine

University of Arizona - Department of Economics

Date Written: April 1, 2016

Abstract

Our perception of time is both nonlinear and nonstationary, which makes preference reversals possible. I decompose the sources of dynamic inconsistency into a time acceleration effect and a time compression effect. Standard economic models focus only on the second effect. I show that when the perception of time accelerates with age, the two effects can offset each other for hyperbolic discounters but not for exponential discounters. In line with the results of recent economic experiments, such hyperbolic discounters would report discount rates that seem to imply dynamic inconsistency but would nonetheless manifest dynamic consistency in actual choices over time.

Keywords: age, discounting, dynamic consistency, hyperbolic, intertemporal choice, preference reversals, time

JEL Classification: A12, C91, D91

Suggested Citation

Lemoine, Derek, Age-Induced Acceleration of Time: Implications for Intertemporal Choice (April 1, 2016). University of Arizona Department of Economics Working Paper No. 15-02. Available at SSRN: https://ssrn.com/abstract=2571410 or http://dx.doi.org/10.2139/ssrn.2571410

Derek Lemoine (Contact Author)

University of Arizona - Department of Economics ( email )

McClelland Hall
Tucson, AZ 85721-0108
United States

HOME PAGE: http://www.dereklemoine.com/

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