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Multiple solutions under quasi-exponential discounting
Stockholm School of Economics, Sweden.
2009 (English)In: Economic Theory, ISSN 0938-2259, E-ISSN 1432-0479, Vol. 39, no 3, p. 513-526Article in journal (Refereed) Published
Abstract [en]

Infinite horizon dynamic optimization problems with non-exponential time preferences may not only exhibit time inconsistency but may also have multiple solutions with distinct payoffs. We here show that such multiplicity is generic in the sense that it occurs in an open set of such decision problems, even with small state- and action-spaces. Non-exponential discounting allows for an "addictive" equilibrium alongside a "virtuous" equilibrium. We also provide a sufficient condition for uniqueness in infinitely repeated decision problems with general action spaces.

Place, publisher, year, edition, pages
2009. Vol. 39, no 3, p. 513-526
Keyword [en]
Time-consistency, Hyperbolic discounting, Stochastic dynamic programming, Multiplicity, Uniqueness
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:kth:diva-86673DOI: 10.1007/s00199-008-0368-2ISI: 000264320500012OAI: oai:DiVA.org:kth-86673DiVA, id: diva2:500912
Note
QC 20120214Available from: 2012-02-13 Created: 2012-02-13 Last updated: 2017-12-07Bibliographically approved

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