temporal-1

temporal-1 - Judgments and Decisions November 2, 2011...

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Judgments and Decisions November 2, 2011 Temporal Discounting and Self Control
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What would you rather have? A. $100 today B. $150 a year from now Temporal discounting of future money implies that the utility of money decreases with time.
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What would you rather have? A. $100 today B. $110 in a month What would you rather have? A. $100 in 12 months B. $110 in 13 months
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Normative Theory of Discounting Money should be discounted at a constant rate over time. This implies that preferences will be consistent over time.
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Now vs. Later What people want NOW often conflicts with long-term goals Buy now vs. save for future chocolate cake now vs. weight loss and longevity Party now vs good grades later The “Planner” inside us is concerned with lifetime utility, whereas the “Doer” cares only about immediate gratification.
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Spending vs. Saving Economic theories of saving assume optimization, or utility maximization over the life span. The life-cycle hypothesis says that saving at any stage of a person’s life-cycle can be predicted by finding the stream of consumption that is utility maximizing given that person’s current income and wealth, expectation of future income, and life expectancy
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The life cycle hypothesis: An example Tom and Ray are identical twins in every respect except Tom, a basketball player, earned the vast majority of his money early
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This note was uploaded on 01/17/2012 for the course PPE 253 taught by Professor Mellers during the Fall '11 term at UPenn.

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temporal-1 - Judgments and Decisions November 2, 2011...

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