PPE 10:2

PPE 10:2 - Temporal discounting future money implies that...

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Temporal discounting – future money implies that the utility of money decreases with time Normative theory of discounting - money should be discounted at a constant rate over time - this implies that preferences will be consistent over time y = e^(-rt) - this represent a hyperbolic function – anything that happens now is far more important than anything that happens in the future - Y = 1 / (1 + Rt) Y = utility R = rate at which you value the present vs. the future - if r is big then you have more of a present bias T = time Now vs. Later - what people want NOW often conflits with long-term goals o Buy now vs. save for the future o Chocolate cake now vs. weight loss and longevity o Party now vs. good grades later - the “planner” inside us is concerned with lifetime utility, whereas the “Doer” cares only about immediate gratification Spending vs. Saving - economic theories of saving assume optimization or utility maximization over the life spane o The life-cycle hypothesis says that saving at any stage of a person’s life
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This note was uploaded on 01/14/2012 for the course PPE 253 taught by Professor Mellers during the Fall '11 term at UPenn.

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PPE 10:2 - Temporal discounting future money implies that...

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