Weighted discounting—On group diversity, time-inconsistency, and consequences for investment

Sebastian Ebert, Wei Wei and Xun Yu Zhou

Journal of Economic Theory, 2020, vol. 189, issue C

Abstract: This paper presents the class of weighted discount functions, which contains the discount functions commonly used in economics and finance. Weighted discount functions may describe the discounting behavior of groups, uncertainty about what discount rate to use, present-biased time preferences, and all of these simultaneously. As an application, we study investment behavior under weighted discounting and come up with the following general result: Greater group diversity, greater parameter uncertainty, and more present-biased time preferences lead to delayed investment or, equivalently, more risk-taking.

Keywords: Diversity; Hyperbolic discounting; Investment; Parameter uncertainty; Time inconsistency; Weighted discounting (search for similar items in EconPapers)
JEL-codes: D81 D90 G11 (search for similar items in EconPapers)
Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (12)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0022053118305295
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:jetheo:v:189:y:2020:i:c:s0022053118305295

DOI: 10.1016/j.jet.2020.105089

Access Statistics for this article

Journal of Economic Theory is currently edited by A. Lizzeri and K. Shell

More articles in Journal of Economic Theory from Elsevier
Bibliographic data for series maintained by Catherine Liu ().