A power law type of time preference on intertemporal choices

Abstract Discount utility, based on utility theory, is used to study human decision behaviors under the consideration of time preference. It assumes that by means of the axiomatic system of rationality, it is possible to quantify human beings’ utilities by some explicable models for intertemporal decision making. Recent studies have been based on two basic models: the exponential and the hyperbolic discount models. These two types of model have been proved to be either too fast for discounting or too restricted for fitting human beings’ discounting behaviors. In this study, a power law discount model is proposed. Axiomatic approach is used to ascertain the existence of the power law discount utility, and empirical investigations are implemented to verify the effectiveness of the proposed model.

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