Weighted discounting, time inconsistent stopping and their applications

Thesis

This thesis studies groups whose members disagree about the method of discounting. In particular, we provide a comprehensive treatment of discount functions that are given by the weighted average of the group members’ discount functions. This class of "weighted discount functions" admits a natural notion of group diversity, which has consequences for behavior. We show that more diverse groups discount less heavily and make more patient decisions. Within a real options framework, for example, greater group diversity leads to delayed investment. Then, we show that well-known behavioral discount functions can be written as a weighted discount function. Therefore, all results in this thesis find a correspondence in a single agent setting with non-standard, behavioral time preferences. In particular, we provide an equilibrium stopping result for individuals who are aware of their time-inconsistency, but lack commitment. Finally, we propose an example which shows that the Bellman system for the equilibrium stopping problem may not admit any proper solution and illustrate that the non-existence is caused by group diversity or decreasing impatience.

Authors: Wei, W

• DOI: 10.5287/ora-bprg98kox
• Type of award: DPhil
• Level of award: Doctoral
• Awarding institution: University of Oxford