Rationalizing hyperbolic discounting

Abstract We show that if agents are uncertain about their discount rates it may be rational for them to discount the distant future hyperbolically rather than exponentially. Our findings thus may rationalize a common observation in experimental work, which indicates that people discount the future at hyperbolic rates. We show that under some assumptions, uncertainty over hazard rates may lead to non-constant discounting but not imply dynamically inconsistent behavior. Under other assumptions, uncertainty over discount rates can lead to dynamically inconsistent behavior like violating planned consumption profiles by bringing consumption forward.