Time Discounting and Time Preference: A Critical Review

Authors: Frederick, Shane¹; Loewenstein, George²; O'Donoghue, Ted³

Source: Journal of Economic Literature, Volume 40, Number 2, 1 June 2002 , pp. 351-401(51)

Publisher: American Economic Association

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Abstract:

This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

Document Type: Research article

DOI: http://dx.doi.org/10.1257/002205102320161311

Affiliations: 1: Sloan School of Management, Massachusetts Institute of Technology 2: Department of Social and Decision Sciences, Carnegie Mellon University 3: Department of Economics, Cornell University

Publication date: 2002-06-01

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The Journal of Economic Literature (JEL) began publication in 1969 under the auspices of the American Economic Association with quarterly issues appearing in March, June, September, and December. JEL contains survey and review articles, book reviews, an annotated bibliography of newly published books, and a list of current dissertations in North American universities.
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