AbstractIntertemporal choices play a fundamental role in the lives of individuals, and the DiscountedUtility model is the essential framework for describing decision makers’ attitudesin front of alternatives structured over multiple periods. The classical formulation of themodel assumes constant preferences over time, i.e., it assumes that individuals’ choicesare consistent. Empirical evidence, however, shows that individuals’ preferences do notrespond to this assumption, generating temporally inconsistent decisions. This paperaddresses the problem of temporal inconsistency in order to interpret and describe anomalouschoices, i.e., not rationalizable from a theoretical point of view, through the cognitivedistortions of the decision-maker. Indeed, even if we assume that the investor is a rationalsubject, behavioral finance suggests that an anomaly is part of the human being and mustbe recognized as a systematic condition of the decision-making process. Exploiting therelationship between the rate of impatience and temporal preference, this work aims todemonstrate that the degree of decrease in impatience quantifies the weight of emotionaldrives in the anomalies of intertemporal choices. An experimental approach based on constructingthe hyperbolic factor for each individual in different contexts is presented to testour results. The variability in the collected data highlights that individuals’ behavior is verydifferent, suggesting the need to project strategies in personalized finance.

An analysis of intertemporal inconsistency through the hyperbolic factor

Maturo, Fabrizio
2023-01-01

Abstract

AbstractIntertemporal choices play a fundamental role in the lives of individuals, and the DiscountedUtility model is the essential framework for describing decision makers’ attitudesin front of alternatives structured over multiple periods. The classical formulation of themodel assumes constant preferences over time, i.e., it assumes that individuals’ choicesare consistent. Empirical evidence, however, shows that individuals’ preferences do notrespond to this assumption, generating temporally inconsistent decisions. This paperaddresses the problem of temporal inconsistency in order to interpret and describe anomalouschoices, i.e., not rationalizable from a theoretical point of view, through the cognitivedistortions of the decision-maker. Indeed, even if we assume that the investor is a rationalsubject, behavioral finance suggests that an anomaly is part of the human being and mustbe recognized as a systematic condition of the decision-making process. Exploiting therelationship between the rate of impatience and temporal preference, this work aims todemonstrate that the degree of decrease in impatience quantifies the weight of emotionaldrives in the anomalies of intertemporal choices. An experimental approach based on constructingthe hyperbolic factor for each individual in different contexts is presented to testour results. The variability in the collected data highlights that individuals’ behavior is verydifferent, suggesting the need to project strategies in personalized finance.
2023
Intertemporal choice · Discounted Utility model · Hyperbolic discount ·Inconsistency · Anomalies · Impatience · Hyperbolic factor · Decreasing impatience
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.12606/4688
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 6
social impact