This paper discusses the discounted utility (DU) model: its historical development, underlying assumptions, and "anomalies" - the empirical regularities that are inconsistent with its theoretical predictions. We then summarize the alternate theoretical formulations that have been advanced to address these anomalies. We also review three decades of empirical research on intertemporal choice, and discuss reasons for the spectacular variation in implicit discount rates across studies. Throughout the paper, we stress the importance of distinguishing time preference, per se, from many other considerations that also influence intertemporal choices.

/pdf/time-discounting-and-time-preference-a-critical-review-47don96ek5.pdf

Time Discounting and Time Preference: A Critical Review

This paper introduces a three-item "Cognitive Reflection Test" (CRT) as a simple measure of one type of cognitive ability—the ability or disposition to reflect on a question and resist reporting the first response that comes to mind. The author will show that CRT scores are predictive of the types of choices that feature prominently in tests of decision-making theories, like expected utility theory and prospect theory. Indeed, the relation is sometimes so strong that the preferences themselves effectively function as expressions of cognitive ability—an empirical fact begging for a theoretical explanation. The author examines the relation between CRT scores and two important decision-making characteristics: time preference and risk preference. The CRT scores are then compared with other measures of cognitive ability or cognitive "style." The CRT scores exhibit considerable difference between men and women and the article explores how this relates to sex differences in time and risk preferences. The final section addresses the interpretation of correlations between cognitive abilities and decision-making characteristics.

/pdf/cognitive-reflection-and-decision-making-u372g0yreb.pdf

Cognitive Reflection and Decision Making

The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

We develop a theory of rational addiction in which rationality means a consistent plan to maximize utility over time. Strong addiction to a good requires a big effect of past consumption of the good on current consumption. Such powerful complementarities cause some steady states to be unstable. They are an important part of our analysis because even small deviations from the consumption at an unstable steady state can lead to large cumulative rises over time in addictive consumption or to rapid falls in consumption to abstention. Our theory also implies that "cold turkey" is used to end strong addictions, that addicts often go on binges, that addicts respond more to permanent than to temporary changes in prices of addictive goods, and that anxiety and tensions can precipitate an addiction.

https://sites.duke.edu/econ206_01_s2011/files/2015/04/14_TeamGrossman_RationalAddiction.pdf

A Theory of Rational Addiction

UNIVERSITY OF CALIFORNIA A T B E R K E L E Y Department of Economics Berkeley, California 94720-3880 Working Paper No. 97-253 Doing It Now or Later Ted O'Donoghue Center for Mathematical Studies in Economic and Management Sciences Northwestern University and Matthew Rabin Department of Economics University of California, Berkeley January 1997 Key words: doing it, hyperbolic discounting, preproperation, procrastination, time inconsistency JEL Classification: A12, B49, C70, D l l , D60, D74, D91, E21 We thank Steven Blatt, Erik Eyster, and Clara Wang for useful research assistance, and Steven Blatt, Erik Eyster, David Laibson, and seminar participants at UC Berkeley, Northwestern, Russell Sage Foundation, Columbia, Yale and Harvard/MIT for helpful comments. O'Donoghue thanks the Alfred P. Sloan Foundation and Rabin thanks the Alfred P. Sloan and Russell Sage Foundations for financial support.

https://www.econstor.eu/bitstream/10419/221528/1/cmsems-dp1172.pdf

Doing It Now or Later

Higher education is a business: it produces and sells educational services to customers for a price and it buys inputs with which to make that product. Production is subject to technological constraints. Costs and revenues discipline decisions and determine the long-run viability of a college or university. ‘‘But higher education is not just a business.’’ While that statement is often meant to imply that higher education is nobler than business—more decent and humane in the purposes it serves—it can also mean that even in economic terms higher education is, in important ways, simply different from a business. This paper asks how well our extensive experience with commercial businesses—and the microeconomic theory of firms and markets that has evolved to describe them—helps in understanding the economics of higher education. That experience and those insights will be used by trustees, politicians, administrators, lawyers, reporters and the public, as well as by economists, to understand and evaluate the behavior of colleges and universities. So it is useful to ask how safe it is to use ‘‘the economic analogy’’ in the context of higher education, drawing parallels between universities and firms, students and customers, faculty and labor markets, and so on. The discussion here seeks to identify the key economic features of higher education that make it different from familiar for-profit industries and to ask what difference those differences make. This is a stick that can be picked up from either end. One approach is to start with meticulous economic theory and see how far it can be made to encompass the economic realities of higher education. An excellent recent paper by Rothschild and White (1995) does that. In their matching model, students and colleges meet

https://pubs.aeaweb.org/doi/pdfplus/10.1257/jep.13.1.13

Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education

A time-specific model of compulsive consumption incorporates the two central characteristics of addiction: that people get hooked through use of addictive commodities and that people often are of two minds, simultaneously wanting to consume an addictive commodity and to avoid it. The paper demonstrates the importance of modeling that stable and bounded human non-constancy that is ruled out by orthodox equilibrium analysis: it induces ‘anti-market’ selling consumption avoidance; it creates consumer conflict and the need for self-control; it implies the possible welfare superiority of blind hedonism over expected utility maximization.

Addiction and backsliding: A theory of compulsive consumption

https://sites.williams.edu/wpehe/files/2011/06/DP-63.pdf

Impatience and Grades: Delay-Discount Rates Correlate Negatively with College Gpa.

Because the rewards of academic performance in college are often delayed, the delay-discounting model of impulsiveness (Ainslie, 1975) predicts that academic performance should tend to decrease as people place less weight on future outcomes To test this hypothesis, we estimated (hyperbolic) discount rates for real delayed monetary rewards ($10 to $20) using second-price auction procedures with 247 undergraduates at two liberal arts colleges College GPA was reliably correlated with discount rates, r = -19 (p = 003), and remained reliable after partialling out SAT scores The results add to the external validity of the discounting model of impulsiveness, and point to a possible contributor to academic performance of interest in the study of higher education

Impatience and grades: Delay-discount rates correlate negatively with college GPA

This paper was prepared as a chapter for College Decisions: How Students Actually Make Them and How They Could, edited by Caroline Hoxby for publication by the University of Chicago Press for the NBER. In this chapter, we describe the potential significance of student peer effects for the economic structure and behavior of higher education. Their existence would motivate much of the restricted supply, student queuing, and selectivity - and institutional competition via merit aid and honors colleges - that we see in American higher education; their (appropriate) non-linearity could justify the resulting stratification of higher education as an efficient way to produce human capital. In addition, we use data from the College and Beyond entering class of 1989, combined with phonebook data identifying roommates, to implement a quasi-experimental empirical strategy aimed at measuring peer effects in academic outcomes. In particular, we use data on individual students' grades, SAT scores, and the SAT scores of their roommates at three schools to estimate the effect of roommates' academic characteristics on an individual's grades. The results suggest that, for two of the three schools used, students in the middle of the SAT distribution do somewhat worse in terms of grades if they share a room with a student who is in the bottom 15 percent of the SAT distribution. Students in the top of the SAT distribution appear often not to be affected by the SAT scores of their roommates. These results are similar to those reported in earlier research using data from Williams (Zimmerman) and Dartmouth (Sacerdote).

Gordon C. Winston

Papers

Subsidies, Hierarchy and Peers: The Awkward Economics of Higher Education

Addiction and backsliding: A theory of compulsive consumption

Impatience and Grades: Delay-Discount Rates Correlate Negatively with College Gpa.

Impatience and grades: Delay-discount rates correlate negatively with college GPA

Peer Effects in Higher Education