For the last century, economists have assumed that agents have ‘deep’ time preferences — in other words, they value pleasures and pains in t years more than pleasures and pains in t+1 years. By contrast, philosophers have often argued that discounting of future rewards results from “myopia” i.e. imperfect foresight. We develop the myopia hypothesis, showing that time discounting arises naturally when a perfectly patient Bayesian decision-maker receives noisy signals about the future (instead of noiseless forecasts). Our benchmark model of imperfect forecasting implies that agents act as if they have hyperbolic time preferences, which includes the prediction of systematic preference reversals. However, our model, unlike true hyperbolic preferences, does not imply that agents should choose to commit themselves.
Speaker:
David Laibson, PhD, Department of Economics, Harvard University
Myopia and Discounting
(work with Xavier Gabaix)
The event is free and open to the public. Advanced registration required, please visit Columbia Business School Center for Decision Sciences website.
