Time Discounting and Time Preference: A Critical Review

Published on Jun 1, 2002in Journal of Economic Literature8.604
· DOI :10.1257/002205102320161311
Shane Frederick28
Estimated H-index: 28
(MIT: Massachusetts Institute of Technology),
George Loewenstein140
Estimated H-index: 140
(CMU: Carnegie Mellon University),
Ted O'Donoghue32
Estimated H-index: 32
(Cornell University)
Sources
Abstract
This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.
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