Age-Induced Acceleration of Time: Implications for Intertemporal Choice∗

Our perception of time is both nonlinear and nonstationary, which makes preference reversals possible. I decompose the sources of dynamic inconsistency into a time acceleration effect and a time compression effect. Standard economic models focus only on the second effect. I show that when the perception of time accelerates with age, the two effects can offset each other for hyperbolic discounters but not for exponential discounters. In line with the results of recent economic experiments, such hyperbolic discounters would report discount rates that seem to imply dynamic inconsistency but would nonetheless manifest dynamic consistency in actual choices over time.