Delay Functions as the Foundation of Time Preference: Testing for Separable Discounted Utility

42 Pages Posted: 20 Apr 2015

See all articles by Keith M. Marzilli Ericson

Keith M. Marzilli Ericson

Boston University - Markets, Public Policy, and Law; National Bureau of Economic Research (NBER)

Jawwad Noor

Boston University - Department of Economics

Date Written: April 2015

Abstract

Delay functions, which vary timing of rewards but fix the money dimension, can elicit the form of discount functions with minimal assumptions. We present a general theorem that characterizes the set of discount functions and utility indices compatible with any 'regular' preference. We provide conditions to test for separable discounted utility (SDU). We elicit individual delay functions for a range of amounts and time horizons. When we impose SDU assumptions, we classify more than half our analysis sample as exponential discounters. However, we reject SDU assumptions for 68% of the sample in favor of magnitude-dependent discounting with time distortion.

Suggested Citation

Ericson, Keith M. Marzilli and Noor, Jawwad, Delay Functions as the Foundation of Time Preference: Testing for Separable Discounted Utility (April 2015). NBER Working Paper No. w21095. Available at SSRN: https://ssrn.com/abstract=2596424

Keith M. Marzilli Ericson (Contact Author)

Boston University - Markets, Public Policy, and Law ( email )

Boston, MA
United States

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Jawwad Noor

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States

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