The discounted utility model and social preferences:: Some alternative formulations to conventional discounting

This paper considers four patterns of intertemporal choice. First, the time effect, an inverse relation between time preference (TP) and the time implied in the choice. Secondly, the magnitude effect, an inverse relation between TP and the amount implied in the choice. Thirdly, delay/speed-up asymmetry, that is to say, a change in the preferences in function of the framing of the choices. Fourthly, the domain effect, where TPs differ as between health and money. The novel aspect of the paper is the finding that such patterns are present when individuals face intertemporal social choices with respect to money and health which, therefore, could be interpreted as fundamental properties of intertemporal choice. Furthermore, given the time effect, consideration is given to the quantitative form of the discount function. It is found that hyperbolic discounting models provide a better description of the stated preferences than the conventional discounted utility model or the quasi-hyperbolic discounting model. The results provide evidence in support of the hyperbolic social discounting models. 2002 Elsevier Science B.V. All rights reserved. PsycINFO classification: 2340 JEL classification: D90 Journal of Economic Psychology 23 (2002) 317–337 www.elsevier.com/locate/joep Corresponding author. Tel.: +34-976-761-478; fax: +34-976-761-484. E-mail address: [email protected] (A. Lazaro). 0167-4870/02/$ see front matter 2002 Elsevier Science B.V. All rights reserved. PII: S0167-4870 (02 )00079-X