Strotz Meets Allais: Diminishing Impatience and the Certainty Effect: Comment
Halevy (2008) states the equivalence between diminishing impatience (i.e., quasi-hyperbolic discounting) and the common ratio effect. The present paper shows that one way of the equivalence is false and shows the correct and general relationships: diminishing impatience is equivalent to the certainty effect and that strong diminishing impatience (i.e., hyperbolic discounting) is equivalent to the common ratio effect.
Additional Information© 2011 American Economic Association. I am indebted to my advisor Eddie Dekel for continuous guidance. I am also indebted to my former adviser Michihiro Kandori for his guidance when I was at the University of Tokyo. I am grateful to Jeff Ely and Marciano Siniscalchi for helpful comments. I would also like to thank Kazuki Baba, Colin Camerer, Thomas Epper, Faruk Gul, Yoram Halevy, Daisuke Ikeda, Kazuya Kamiya, David Levine, Akihiko Matsui, Manel Baucells, Shinjiro Miyazawa, Daisuke Nakajima, Arthur Robson, Balazs Szentes, Kosuke Uetake, and seminar audiences at Northwestern. I acknowledge financial support from the NSF grant SES 0820333 and the Center for Economic Theory of Northwestern University.
Published - aer_2E101_2E5_2E2271.pdf