Beta-Delta or Delta-Tau? A Reformulation of Quasi-Hyperbolic Discounting

This paper introduces the index tau = ln beta/ln delta as a measure of time inconsistency and vulnerability to self-control problems in the quasi-hyperbolic, beta-delta (beta, delta) discounting model. We provide a preference foundation for tau and, consequently, a revealed preference definition of failed self-control. The tau index is independent of utility and has an intuitive interpretation as the maximum number of future selves who can disagree with the current self with respect to uniform deviations from an intertemporal plan. The index is also computable for continuous discount functions after an appropriate mapping of functions onto the (beta, delta) family. The tau index thus provides a common yardstick for comparing temporal inconsistency across different functional forms.

Automated summary

This paper introduces a new index tau as a measure of time inconsistency and vulnerability to self-control problems in the quasi-hyperbolic beta-delta discounting model. By providing a preference foundation for tau and revealing a definition of failed self-control, this index offers an intuitive interpretation and serves as a common yardstick for comparing temporal inconsistency across different functional forms. The tau index is independent of utility and computable for continuous discount functions after appropriate mapping onto the (beta, delta) family.