A simple framework for the axiomatization of exponential and quasi-hyperbolic discounting (1511.06454v1)

Abstract: The main goal of this paper is to investigate which normative requirements, or axioms, lead to exponential and quasi-hyperbolic forms of discounting. Exponential discounting has a well-established axiomatic foundation originally developed by Koopmans (1960, 1972) and Koopmans et al. (1964) with subsequent contributions by several other authors, including Bleichrodt et al. (2008). The papers by Hayashi (2003) and Olea and Strzalecki (2014) axiomatize quasi-hyperbolic discounting. The main contribution of this paper is to provide an alternative foundation for exponential and quasi-hyperbolic discounting, with simple, transparent axioms and relatively straightforward proofs. Using techniques by Fishburn (1982) and Harvey (1986), we show that Anscombe and Aumann's (1963) version of Subjective Expected Utility theory can be readily adapted to axiomatize the aforementioned types of discounting, in both finite and infinite horizon settings.