Premium
A Theory of Time Preference
Author(s) -
Trostel Philip A.,
Taylor Grant A.
Publication year - 2001
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/39.3.379
Subject(s) - time preference , economics , consumption (sociology) , discounting , preference , intertemporal choice , hyperbolic discounting , revealed preference , econometrics , delay discounting , constant (computer programming) , dynamic inconsistency , microeconomics , computer science , social science , finance , sociology , programming language
This article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption (eventually) falls as their mental and physical abilities (eventually) decline with age. Moreover, contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age, this article asserts that discounting increases over the life cycle. This hypothesis is supported by data from the Panel Study of Income Dynamics as well as evidence from numerous previous studies.