Decreasing impatience and the magnitude effect jointly contradict exponential discounting

The experimental literature on time preference …nds that the manner in which subjects discount money (as opposed to utility) exhibits properties known as Decreasing Impatience and the Magnitude Effect. While these …ndings are often referred to as anomalies for the Exponential Discounting model, several authors have demonstrated that each of these qualitative …ndings can be explained by the curvature of utility and thus are not anomalies. We prove that, under basic regularity conditions, the two …ndings jointly imply the existence of Preference Reversals, and thus jointly contradict the Exponential Discounting model. Keywords: Time Preference, Preference Reversals, Decreasing Impatience, Magnitude E¤ect, DU anomalies. JEL classi…cation number: D11 Dept of Economics, Boston University, 270 Bay State Road, Boston MA 02215. Email: [email protected]. This paper was previously titled “Anomalous Money-Discounting”. Thanks are due to Attila Ambrus, Paola Manzini and Marco Mariotti for useful comments, and to an Associate Editor and two referees for comments that substantially improved the presentation of the paper and shortened the proof of the main result. The usual disclaimer applies.