Rational hyperbolic discounting

TL;DR

This paper introduces a rational model for hyperbolic discounting, showing that under certain physical conditions, hyperbolic discounting can be justified without relying on psycho-behavioral assumptions, by considering low-accuracy decision-making.

Contribution

It demonstrates that hyperbolic discounting can be derived from rational principles under specific physical conditions, bridging the gap between behavioral and physical explanations.

Findings

$q$-exponential discounting guarantees indifference over multiple periods.

Hyperbolic discounting can be interpolated between hyperbolic and exponential functions.

Physical conditions can justify hyperbolic discounting independently of psycho-behavioral assumptions.

Abstract

How much should you receive in a week to be indifferent to \$ 100 in six months? Note that the indifference requires a rule to ensure the similarity between early and late payments. Assuming that rational individuals have low accuracy, then the following rule is valid: if the amounts to be paid are much less than the personal wealth, then the $q$-exponential discounting guarantees indifference in several periods. Thus, the discounting can be interpolated between hyperbolic and exponential functions due to the low accuracy to distinguish time averages when the payments have low impact on personal wealth. Therefore, there are physical conditions that allow the hyperbolic discounting regardless psycho-behavioral assumption.