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Durham University

Research & business

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Publication details

Pan, J., Webb, C.S. & Zank, H. (2015). An Extension of Quasi-hyperbolic Discounting to Continuous Time. Games and Economic Behavior 89: 43-55.

Author(s) from Durham

Abstract

Two-Stage Exponential (TSE) discounting, the model developed here, generalises exponential discounting in a parsimonious way. It can be seen as an extension of Quasi-Hyperbolic discounting to continuous time. A TSE discounter has a constant rate of time preference before and after some threshold time; the switch point. If the switch point is expressed in calendar time, TSE discounting captures time consistent behaviour. If it is expressed in waiting time, TSE discounting captures time invariant behaviour. We provide preference foundations for all cases, showing how the switch point is derived endogenously from behaviour. We apply each case to Rubinstein's infinite-horizon, alternating-offers bargaining model.