Agenda

Facundo Piguillem (Ente Einaudi for Economics and Finance) - Hyperbolic Discounting with Random Gratification (with Liyan Shi)

Abstract:
We analyze the dynamic problem of decision makers with quasi-hyperbolic discounting and random shocks to temptation. We show that this problem is equivalent to that of a time-consistent agent who assigns biased weights to future shocks. This equivalence provides a straightforward methodology for finding, theoretically and numerically, the Markov equilibrium with hyperbolic agents. Through this equivalent problem, we prove the existence and uniqueness of the Markov equilibrium under mild conditions. Furthermore, if the weights constitute a probability measure, the decision maker can be interpreted as optimistically biased, ensuring a unique equilibrium and continuous decision rules. Otherwise, there is intertemporal “conflict” between present and future agents: if the conflict is severe, multiplicity may arise.