TEL  Vol.5 No.2 , April 2015
Quasi-Hyperbolic Discounting and Delayed Retirement
ABSTRACT
We study the active retirement choice in a simple three-period life-cycle setting and demonstrate that time-inconsistent delayed retirement becomes a theoretical possibility. This helps to align theory with the intuition that delaying the date of retirement can be a reasonable response to spending too much and saving too little for retirement.

Cite this paper
Feigenbaum, J. and Findley, T. (2015) Quasi-Hyperbolic Discounting and Delayed Retirement. Theoretical Economics Letters, 5, 325-331. doi: 10.4236/tel.2015.52038.
References
[1]   Rachlin, H., Raineri, A. and Cross, D. (1991) Subjective Probability and Delay. Journal of the Experimental Analysis of Behavior, 55, 233-244. http://dx.doi.org/10.1901/jeab.1991.55-233

[2]   Kirby, K.N. and Marakovic, N.N. (1995) Modeling Myopic Decisions: Evidence for Hyperbolic Delay-Discounting within Subject and Amounts. Organizational Behavior and Human Decision Processes, 64, 22-30. http://dx.doi.org/10.1006/obhd.1995.1086

[3]   Cairns, J. and van der Pol, M. (2000) Valuing Future Private and Social Benefits: The Discounted Utility Model versus Hyperbolic Discounting Models. Journal of Economic Psychology, 21, 191-205. http://dx.doi.org/10.1016/S0167-4870(99)00042-2

[4]   Frederick, S., Loewenstein, G. and O’Donoghue, T. (2002) Time Discounting and Time Preference: A Critical Review. Journal of Economic Literature, 40, 351-401. http://dx.doi.org/10.1257/jel.40.2.351

[5]   Ainslie, G. (2005) Précis of Breakdown of Will. Behavioral and Brain Sciences, 28, 635-650. http://dx.doi.org/10.1017/S0140525X05000117

[6]   Harrison, G.W. and Lau, M.I. (2005) Is the Evidence for Hyperbolic Discounting in Humans Just an Experimental Artefact? Behavioral and Brain Sciences, 28, 657. http://dx.doi.org/10.1017/S0140525X05290118

[7]   Andreoni, J. and Sprenger, C. (2012) Estimating Time Preferences from Convex Budgets. American Economic Review, 102, 3333-3356. http://dx.doi.org/10.1257/aer.102.7.3333

[8]   Dohmen, T., Falk, A., Huffman, D. and Sunde, U. (2012) Interpreting Time Horizon Effects in Inter-Temporal Choice. CESifo Working Paper Series, Working Paper No. 3750, Unpublished.

[9]   Sutter, M., Kocher, M.G., Glatzle-Rüetzler, D. and Trautmann, S.T. (2013) Impatience and Uncertainty: Experimental Decisions Predict Adolescents’ Field Behavior. American Economic Review, 103, 510-531. http://dx.doi.org/10.1257/aer.103.1.510

[10]   O’Donoghue, T. and Rabin, M. (1999) Procrastination in Preparing for Retirement. In: Aaron, H., Ed., Behavioral Dimensions of Retirement Economics, Brookings Institution Press and Russell Sage Foundation, Washington DC, 125-160.

[11]   O’Donoghue, T. and Rabin, M. (1999) Incentives for Procrastinators. Quarterly Journal of Economics, 114, 769-816. http://dx.doi.org/10.1162/003355399556142

[12]   O’Donoghue, T. and Rabin, M. (2000) The Economics of Immediate Gratification. Journal of Behavioral Decision Making, 13, 233-250. http://dx.doi.org/10.1002/(SICI)1099-0771(200004/06)13:2<233::AID-BDM325>3.0.CO;2-U

[13]   O’Donoghue, T. and Rabin, M. (2003) Self-Awareness and Self-Control. In: Loewenstein, G., Read, D. and Baumeister, R.F., Eds., Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice, Russell Sage Foundation Publications, Washington DC, 217-243.

[14]   Caillaud, B. and Jullien, B. (2000) Modelling Time-Inconsistent Preferences. European Economic Review, 44, 1116-1124. http://dx.doi.org/10.1016/S0014-2921(99)00061-6

[15]   Prelec, D. (2004) Decreasing Impatience: A Criterion for Non-stationary Time Preference and “Hyperbolic” Discounting. Scandinavian Journal of Economics, 106, 511-532. http://dx.doi.org/10.1111/j.0347-0520.2004.00375.x

[16]   Beshears, J., Choi, J.J., Laibson, D. and Madrian, B.C. (2008) How Are Preferences Revealed? Journal of Public Economics, 92, 1787-1794.

[17]   D’Orlando, F. and Sanfilippo, E. (2010) Behavioral Foundations for the Keynesian Consumption Function. Journal of Economic Psychology, 31, 1035-1046. http://dx.doi.org/10.1016/j.joep.2010.09.004

[18]   Herweg, F. and Müller, D. (2011) Performance of Procrastinators: On the Value of Deadlines. Theory and Decision, 70, 329-366. http://dx.doi.org/10.1007/s11238-010-9195-6

[19]   Diamond, P. and Koszegi, B. (2003) Quasi-Hyperbolic Discounting and Retirement. Journal of Public Economics, 87, 1839-1872. http://dx.doi.org/10.1016/S0047-2727(02)00041-5

[20]   Holmes, C. (2010) Quasi-Hyperbolic Preferences and Retirement: A Comment. Journal of Public Economics, 94, 129-130. http://dx.doi.org/10.1016/j.jpubeco.2009.10.008

[21]   Findley, T.S. and Feigenbaum, J.A. (2013) Quasi-Hyperbolic Discounting and the Existence of Time-Inconsistent Retirement. Theoretical Economics Letters, 3, 119-123. http://dx.doi.org/10.4236/tel.2013.32019

[22]   Findley, T.S. and Caliendo, F.N. (2015) Time Inconsistency and Retirement Choice. Economics Letters, 129, 4-8. http://dx.doi.org/10.1016/j.econlet.2015.01.027

[23]   Angeletos, G.-M., Laibson, D., Repetto, A., Tobacman, J. and Weinberg, S. (2001) The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation. Journal of Economic Perspectives, 15, 47-68. http://dx.doi.org/10.1257/jep.15.3.47

[24]   Rachlin, H., Raineri, A. and Cross, D. (1991) Subjective Probability and Delay. Journal of the Experimental Analysis of Behavior, 55, 233-244. http://dx.doi.org/10.1901/jeab.1991.55-233

[25]   Kirby, K.N. and Marakovi?, N.N. (1995) Modeling Myopic Decisions: Evidence for Hyperbolic Delay-Discounting within Subject and Amounts. Organizational Behavior and Human Decision Processes, 64, 22-30. http://dx.doi.org/10.1006/obhd.1995.1086

[26]   Cairns, J. and van der Pol, M. (2000) Valuing Future Private and Social Benefits: The Discounted Utility Model versus Hyperbolic Discounting Models. Journal of Economic Psychology, 21, 191-205. http://dx.doi.org/10.1016/S0167-4870(99)00042-2

[27]   Frederick, S., Loewenstein, G. and O’Donoghue, T. (2002) Time Discounting and Time Preference: A Critical Review. Journal of Economic Literature, 40, 351-401. http://dx.doi.org/10.1257/jel.40.2.351

[28]   Ainslie, G. (2005) Précis of Breakdown of Will. Behavioral and Brain Sciences, 28, 635-650. http://dx.doi.org/10.1017/S0140525X05000117

[29]   Harrison, G.W. and Lau, M.I. (2005) Is the Evidence for Hyperbolic Discounting in Humans Just an Experimental Artefact? Behavioral and Brain Sciences, 28, 657. http://dx.doi.org/10.1017/S0140525X05290118

[30]   Andreoni, J. and Sprenger, C. (2012) Estimating Time Preferences from Convex Budgets. American Economic Review, 102, 3333-3356. http://dx.doi.org/10.1257/aer.102.7.3333

[31]   Dohmen, T., Falk, A., Huffman, D. and Sunde, U. (2012) Interpreting Time Horizon Effects in Inter-Temporal Choice. CESifo Working Paper Series, Working Paper No. 3750, Unpublished.

[32]   Sutter, M., Kocher, M.G., Gl?tzle-Rüetzler, D. and Trautmann, S.T. (2013) Impatience and Uncertainty: Experimental Decisions Predict Adolescents’ Field Behavior. American Economic Review, 103, 510-531. http://dx.doi.org/10.1257/aer.103.1.510

[33]   O’Donoghue, T. and Rabin, M. (1999) Procrastination in Preparing for Retirement. In: Aaron, H., Ed., Behavioral Dimensions of Retirement Economics, Brookings Institution Press and Russell Sage Foundation, Washington DC, 125-160.

[34]   O’Donoghue, T. and Rabin, M. (1999) Incentives for Procrastinators. Quarterly Journal of Economics, 114, 769-816. http://dx.doi.org/10.1162/003355399556142

[35]   O’Donoghue, T. and Rabin, M. (2000) The Economics of Immediate Gratification. Journal of Behavioral Decision Making, 13, 233-250. http://dx.doi.org/10.1002/(SICI)1099-0771(200004/06)13:2<233::AID-BDM325>3.0.CO;2-U

[36]   O’Donoghue, T. and Rabin, M. (2003) Self-Awareness and Self-Control. In: Loewenstein, G., Read, D. and Baumeister, R.F., Eds., Time and Decision: Economic and Psychological Perspectives on Intertemporal Choice, Russell Sage Foundation Publications, Washington DC, 217-243.

[37]   Caillaud, B. and Jullien, B. (2000) Modelling Time-Inconsistent Preferences. European Economic Review, 44, 1116-1124. http://dx.doi.org/10.1016/S0014-2921(99)00061-6

[38]   Prelec, D. (2004) Decreasing Impatience: A Criterion for Non-stationary Time Preference and “Hyperbolic” Discounting. Scandinavian Journal of Economics, 106, 511-532. http://dx.doi.org/10.1111/j.0347-0520.2004.00375.x

[39]   Beshears, J., Choi, J.J., Laibson, D. and Madrian, B.C. (2008) How Are Preferences Revealed? Journal of Public Economics, 92, 1787-1794.

[40]   D’Orlando, F. and Sanfilippo, E. (2010) Behavioral Foundations for the Keynesian Consumption Function. Journal of Economic Psychology, 31, 1035-1046. http://dx.doi.org/10.1016/j.joep.2010.09.004

[41]   Herweg, F. and Müller, D. (2011) Performance of Procrastinators: On the Value of Deadlines. Theory and Decision, 70, 329-366. http://dx.doi.org/10.1007/s11238-010-9195-6

[42]   Diamond, P. and K?szegi, B. (2003) Quasi-Hyperbolic Discounting and Retirement. Journal of Public Economics, 87, 1839-1872. http://dx.doi.org/10.1016/S0047-2727(02)00041-5

[43]   Holmes, C. (2010) Quasi-Hyperbolic Preferences and Retirement: A Comment. Journal of Public Economics, 94, 129-130. http://dx.doi.org/10.1016/j.jpubeco.2009.10.008

[44]   Findley, T.S. and Feigenbaum, J.A. (2013) Quasi-Hyperbolic Discounting and the Existence of Time-Inconsistent Retirement. Theoretical Economics Letters, 3, 119-123. http://dx.doi.org/10.4236/tel.2013.32019

[45]   Findley, T.S. and Caliendo, F.N. (2015) Time Inconsistency and Retirement Choice. Economics Letters, 129, 4-8. http://dx.doi.org/10.1016/j.econlet.2015.01.027

[46]   Angeletos, G.-M., Laibson, D., Repetto, A., Tobacman, J. and Weinberg, S. (2001) The Hyperbolic Consumption Model: Calibration, Simulation, and Empirical Evaluation. Journal of Economic Perspectives, 15, 47-68. http://dx.doi.org/10.1257/jep.15.3.47

 
 
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