The decision about how much to save for
retirement is likely to be dependent on when an individual plans to be retired,
and vice versa. Yet, the established literature on hyperbolic discounting and
life-cycle saving behavior has for the most part abstracted from choice over
retirement. Two notable exceptions are Diamond and Koszegi  and an important
follow-up study by Holmes , which demonstrates that time-inconsistent
retirement timing is impossible when saving behavior is explicitly modeled in a
stylized three-period setting. In this paper, we build upon the framework of
Diamond and Koszegi  and Holmes  by generalizing the assumptions about
initial income and assets. We show analytically and via simple numerical
examples that time-inconsistent retirement can exist in a three-period
life-cycle model of consumption and saving.
Cite this paper
T. Findley and J. Feigenbaum, "Quasi-Hyperbolic Discounting and the Existence of Time-Inconsistent Retirement," Theoretical Economics Letters, Vol. 3 No. 2, 2013, pp. 119-123. doi: 10.4236/tel.2013.32019.
 P. Diamond and B. Koszegi, “Quasi-Hyperbolic Discounting and Retirement,” Journal of Public Economics, Vol. 87, No. 9-10, 2003, pp. 1839-1872.
 C. Holmes, “Quasi-Hyperbolic Preferences and Retirement: A Comment,” Journal of Public Economics, Vol. 94, No. 1-2, 2010, pp. 129-130.
 G. Ainslie and N. Haslam, “Hyperbolic Discounting,” In: G. Loewenstein and J. Elster, Eds., Choice Over Time, Russell Sage Foundation Publications, New York, 1992, pp. 57-92.
 H. Rachlin, A. Raineri and D. Cross, “Subjective Probability and Delay,” Journal of the Experimental Analysis of Behavior, Vol. 55, No. 2, 1991, pp. 233-244.
 K. N. Kirby and N. N. Marakovic, “Modeling Myopic Decisions: Evidence for Hyperbolic Delay-Discounting within Subjects and Amounts,” Organizational Behavior and Human Decision Processes, Vol. 64, No. 1, 1995, pp. 22-30. doi:10.1006/obhd.1995.1086
 J. Myerson and L. Green, “Discounting of Delayed Rewards: Models of Individual Choice,” Journal of the Experimental Analysis of Behavior, Vol. 64, No. 3, 1995, pp. 263-276. doi:10.1901/jeab.1995.64-263
 G. J. Madden and P. S. Johnson, “A Delay-Discounting Primer,” In: G. J. Madden and W. K. Bickel, Eds., Impulsivity: The Behavioral and Neurological Science of Discounting, American Psychological Association, Washington DC, 2010, pp. 11-37.
 M. Sutter, M. G. Kocher, D. Glatzle-Rüetzler and S. T. Trautmann, “Impatience and Uncertainty: Experimental Decisions Predict Adolescents’ Field Behavior,” American Economic Review, Vol. 103, No. 1, 2013, pp. 510-531. doi:10.1257/aer.103.1.510
 T. Dohmen, A. Falk, D. Huffman and U. Sunde, “Interpreting Time Horizon Effects in Inter-Temporal Choice,” CESifo Working Paper Series, Working Paper No. 3750, unpublished.
 D. Laibson, “Life-Cycle Consumption and Hyperbolic Discount Functions,” European Economic Review, Vol. 42, No. 3-5, 1998, pp. 861-871.
 R. H. Strotz, “Myopia and Inconsistency in Dynamic Utility Maximization,” Review of Economic Studies, Vol. 23, No. 3, 1955-1956, pp. 165-180. doi:10.2307/2295722
 T. Tanaka and T. Murooka, “Self-Control Problems and Consumption-Saving Decisions: Theory and Empirical Evidence,” Japanese Economic Review, Vol. 63, No. 1, 2012, pp. 23-37. doi:10.1111/j.1468-5876.2011.00549.x
 T. S. Findley and F. N. Caliendo, “Time Inconsistency and Retirement Choice,” Working Paper, Unpublished.
 B. D. Bernheim, “The Timing of Retirement: A Comparison of Expectations and Realizations,” In: D. A. Wise, Ed., The Economics of Aging, University of Chicago Press, Chicago, 1989, pp. 335-358.
 H. Benítez-Silva and D. S. Dwyer, “The Rationality of Retirement Expectations and the Role of New Information,” Review of Economics and Statistics, Vol. 87, No. 3, 2005, pp. 587-592. doi:10.1162/0034653054638265
 H. Benítez-Silva, D. S. Dwyer, W. R. Gayle and T. J. Muench, “Expectations in Micro Data: Rationality Revisited,” Empirical Economics, Vol. 34, No. 2, 2008, pp. 381-416. doi:10.1007/s00181-007-0127-4
 A. Imrohoroglu, S. Imrohoroglu and D. H. Joines, “Time-Inconsistent Preferences and Social Security,” Quarterly Journal of Economics, Vol. 118, No. 2, 2003, pp. 745-784. doi:10.1162/003355303321675509
 H. Fehr, C. Habermann and F. Kindermann, “Social Security with Rational and Hyperbolic Consumers,” Review of Economic Dynamics, Vol. 11, No. 4, 2008, pp. 884-903. doi:10.1016/j.red.2008.03.001