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Intertemporal Discrete Choice

Authors: Daniele Pennesi;

Intertemporal Discrete Choice

Abstract

The discounted logit is widely used to estimate time preferences using data from field and laboratory experiments. Despite its popularity, it exhibits the "problem of the scale": choice probabilities depend on the scale of the value function. When applied to intertemporal choice, the problem the scale implies that logit probabilities are sensitive to the temporal distance between the choice and the outcomes. This is a failure of an intuitive requirement of stationarity although future values are discounted geometrically. As a consequence, patterns of choice following from the structure of the logit may be attributed to non-stationary discounting. We solve this problem introducing the discounted Luce rule. It retains the flexibility and simplicity of the logit while it satisfies stationarity. We characterize the model in two settings: dated outcomes and consumption streams. Relaxations of stationarity give observable restrictions characterizing hyperbolic and quasi-hyperbolic discounting. Lastly, we discuss an extension of the model to recursive stochastic choices with the present bias.

Country
Italy
Keywords

SECS-P/01 Economia politica, Quaderni - Working Paper DSE, ddc:330, D01, Discrete Choice; Intertemporal Choice; Quasi-hyperbolic Discounting

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selected citations
These citations are derived from selected sources.
This is an alternative to the "Influence" indicator, which also reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Citations provided by BIP!
popularity
This indicator reflects the "current" impact/attention (the "hype") of an article in the research community at large, based on the underlying citation network.
BIP!Popularity provided by BIP!
influence
This indicator reflects the overall/total impact of an article in the research community at large, based on the underlying citation network (diachronically).
BIP!Influence provided by BIP!
impulse
This indicator reflects the initial momentum of an article directly after its publication, based on the underlying citation network.
BIP!Impulse provided by BIP!
2
Average
Average
Average
Green
bronze