A Theory of Time Preference |
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Authors: | Philip A. Trostel Grant A. Taylor |
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Affiliation: | Department of Economics, and Research Associate, Margaret Chase Smith Center for Public Policy, University of Maine, 5715 Coburn Hall, Orono, ME 04469-5715. E-mail;Division of Applied Economics, Nanyang Technological University, 50 Nanyang Ave., Singapore. E-mail |
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Abstract: | This article proposes that people generally prefer present consumption to future consumption because their expected utility from consumption (eventually) falls as their mental and physical abilities (eventually) decline with age. Moreover, contrary to the ubiquitous intertemporal formulation with a constant rate of time preference and contrary to three recent theories of time preference that predict decreasing discounting as people age, this article asserts that discounting increases over the life cycle. This hypothesis is supported by data from the Panel Study of Income Dynamics as well as evidence from numerous previous studies. |
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