Professor Montiel Olea Paper on Hyperbolic Discounting Now Forthcoming at QJE
Professor Montiel Olea’s paper, `Axiomatization and measurement of quasi-hyperbolic discounting’, is now forthcoming at the Quarterly Journal of Economics. This article combines axiomatic decision theory and econometric methodology to propose a novel way to measure the discount factors of a quasi-hyperbolic model of intertemporal choice. The first part of the paper presents an axiomatic characterization of quasi-hyperbolic discounting and a more general class of semi-hyperbolic preferences. The axiomatization leads naturally to an experimental design that disentangles discounting from the elasticity of intertemporal substitution. The second part of the paper concerns the use of data generated by their proposed experimental design to conduct inference about the distribution of discounting parameters in a population of agents. The authors show that their questionnaire yields bounds on individual preference parameters, and consequently, on the distribution of preference parameters over the population. They use the partial identification approach to estimate bounds for the distributions of discount factors in the subject pool. Consistent with previous studies, they find evidence for both present and future bias.