Subjective random discounting and intertemporal choice

Youichiro Higashi, Kazuya Hyogo, Norio Takeoka

Research output: Chapter in Book/Report/Conference proceedingChapter


This chapter provides an axiomatic foundation for a particular type of preference shock model called the random discounting representation where a decision maker believes that her discount factors change randomly over time. For this purpose, we formulate an infinite horizon extension of Dekel, Lipman, and Rustichini (Econometrica 69:891–934, 2001), and identify the behavior that reduces all subjective uncertainties to those about future discount factors. We also show uniqueness of subjective belief about discount factors. Moreover, a behavioral comparison about preference for flexibility characterizes the condition that one’s subjective belief second-order stochastically dominates the other. Finally, the resulting model is applied to a consumption-savings problem.

Original languageEnglish
Title of host publicationBehavioral Economics of Preferences, Choices, and Happiness
PublisherSpringer Japan
Number of pages49
ISBN (Electronic)9784431554028
ISBN (Print)9784431554011
Publication statusPublished - Jan 1 2016


  • Preference for flexibility
  • Random discounting
  • Subjective states

ASJC Scopus subject areas

  • Economics, Econometrics and Finance(all)
  • Business, Management and Accounting(all)
  • Psychology(all)


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