Hyperbolic discounting can be good for your health

Arbeitspapier

It has been argued that hyperbolic discounting of future gains and losses leads to time-inconsistent behavior and thereby, in the context of health economics, not enough investment in health and too much indulgence of unhealthy consumption. Here, we challenge this view. We set up a life-cycle model of human aging and longevity in which individuals discount the future hyperbolically and make time-consistent decisions. This allows us to disentangle the role of discounting from the time consistency issue. We show that hyperbolically discounting individuals, under a reasonable normalization, invest more in their health than they would if they had a constant rate of time preference. Using a calibrated life-cycle model of human aging, we predict that the average U.S. American lives about 4 years longer with hyperbolic discounting than he would if he had applied a constant discount rate. The reason is that, under hyperbolic discounting, experiences in old age receive a relatively high weight in life time utility. In an extension we show that the introduction of health-dependent survival probability motivates an increasing discount rate for the elderly and, in the aggregate, a u-shaped pattern of the discount rate with respect to age.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECON WPS ; No. 11/2016

Classification and Topics

• Classification: Wirtschaft ; Consumer Economics: Theory ; Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making‡ ; Health: General ; Health Behavior
• Subject: discount rates ; present bias ; health behavior ; aging ; longevity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Strulik, Holger ; Trimborn, Timo
• Event: Veröffentlichung
• (who): Vienna University of Technology, Institute of Statistics and Mathematical Methods in Economics, Research Group Economics
• (where): Vienna
• (when): 2016

Further information

• Handle: http://hdl.handle.net/10419/148941
• Last update: 10.03.2025, 11:44 AM CET