Valuing future private and social benefits: The discounted utility model versus hyperbolic discounting models

J Cairns, M Pol van der

Research output: Contribution to journalArticle

41 Citations (Scopus)

Abstract

It is standard practice in economic evaluation and in any economic analysis of future events to assume the discounted utility model on the part of economic agents. This paper compares the discounted utility model with three hyperbolic discounting models with respect to private and social financial benefits. The discounting models are fitted using non-linear regression techniques to data collected from the general public. Regression analysis is then used to test the theoretical validity of the models. The main test is whether the period of years for which the benefit is to be delayed is a statistically significant predictor of the respective values of the discounted utility model and the three hyperbolic discounting models. This tests whether these discounting models are satisfactory representations of the individuals' intertemporal preferences. The results show that there is evidence in favour of hyperbolic discounting models over the discounted utility model. There were not any statistically significant differences in the discounting models fitted for the private and social financial benefits. The regression results were very similar for the private and social financial benefits. (C) 2000 Elsevier Science B.V. All rights reserved. PsycINFO classification: 2340 JEL classification: D90.

Original languageEnglish
Pages (from-to)191-205
Number of pages15
JournalJournal of Economic Psychology
Volume21
Publication statusPublished - 2000

Keywords

  • time preference
  • hyperbolic discounting
  • DELAYED REWARDS
  • PREFERENCE REVERSALS
  • CHOICE
  • RATES
  • DECISIONS
  • LIVES

Cite this

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title = "Valuing future private and social benefits: The discounted utility model versus hyperbolic discounting models",
abstract = "It is standard practice in economic evaluation and in any economic analysis of future events to assume the discounted utility model on the part of economic agents. This paper compares the discounted utility model with three hyperbolic discounting models with respect to private and social financial benefits. The discounting models are fitted using non-linear regression techniques to data collected from the general public. Regression analysis is then used to test the theoretical validity of the models. The main test is whether the period of years for which the benefit is to be delayed is a statistically significant predictor of the respective values of the discounted utility model and the three hyperbolic discounting models. This tests whether these discounting models are satisfactory representations of the individuals' intertemporal preferences. The results show that there is evidence in favour of hyperbolic discounting models over the discounted utility model. There were not any statistically significant differences in the discounting models fitted for the private and social financial benefits. The regression results were very similar for the private and social financial benefits. (C) 2000 Elsevier Science B.V. All rights reserved. PsycINFO classification: 2340 JEL classification: D90.",
keywords = "time preference, hyperbolic discounting, DELAYED REWARDS, PREFERENCE REVERSALS, CHOICE, RATES, DECISIONS, LIVES",
author = "J Cairns and {Pol van der}, M",
year = "2000",
language = "English",
volume = "21",
pages = "191--205",
journal = "Journal of Economic Psychology",
issn = "0167-4870",
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TY - JOUR

T1 - Valuing future private and social benefits: The discounted utility model versus hyperbolic discounting models

AU - Cairns, J

AU - Pol van der, M

PY - 2000

Y1 - 2000

N2 - It is standard practice in economic evaluation and in any economic analysis of future events to assume the discounted utility model on the part of economic agents. This paper compares the discounted utility model with three hyperbolic discounting models with respect to private and social financial benefits. The discounting models are fitted using non-linear regression techniques to data collected from the general public. Regression analysis is then used to test the theoretical validity of the models. The main test is whether the period of years for which the benefit is to be delayed is a statistically significant predictor of the respective values of the discounted utility model and the three hyperbolic discounting models. This tests whether these discounting models are satisfactory representations of the individuals' intertemporal preferences. The results show that there is evidence in favour of hyperbolic discounting models over the discounted utility model. There were not any statistically significant differences in the discounting models fitted for the private and social financial benefits. The regression results were very similar for the private and social financial benefits. (C) 2000 Elsevier Science B.V. All rights reserved. PsycINFO classification: 2340 JEL classification: D90.

AB - It is standard practice in economic evaluation and in any economic analysis of future events to assume the discounted utility model on the part of economic agents. This paper compares the discounted utility model with three hyperbolic discounting models with respect to private and social financial benefits. The discounting models are fitted using non-linear regression techniques to data collected from the general public. Regression analysis is then used to test the theoretical validity of the models. The main test is whether the period of years for which the benefit is to be delayed is a statistically significant predictor of the respective values of the discounted utility model and the three hyperbolic discounting models. This tests whether these discounting models are satisfactory representations of the individuals' intertemporal preferences. The results show that there is evidence in favour of hyperbolic discounting models over the discounted utility model. There were not any statistically significant differences in the discounting models fitted for the private and social financial benefits. The regression results were very similar for the private and social financial benefits. (C) 2000 Elsevier Science B.V. All rights reserved. PsycINFO classification: 2340 JEL classification: D90.

KW - time preference

KW - hyperbolic discounting

KW - DELAYED REWARDS

KW - PREFERENCE REVERSALS

KW - CHOICE

KW - RATES

KW - DECISIONS

KW - LIVES

M3 - Article

VL - 21

SP - 191

EP - 205

JO - Journal of Economic Psychology

JF - Journal of Economic Psychology

SN - 0167-4870

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