The additive property of the inconsistency degree in intertemporal decision making through the generalization of psychophysical laws

Economy – Quantitative Finance – General Finance

Scientific paper

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23 pages and 1 table

Scientific paper

10.1016/j.physa.2011.01.016

Intertemporal decision making involves choices among options whose effects occur at different moments. These choices are influenced not only by the effect of rewards value perception at different moments, but also by the time perception effect. One of the main difficulties that affect standard experiments involving intertemporal choices is the simultaneity of both effects on time discounting. In this paper, we unify the psycophysical laws and discount value functions using the one-parameter exponential and logaritmic functions from nonextensive statistical mechanics. Also, we propose to measure the degree of inconsistency. This quantity allow us to discriminate both effects of time and value perception on discounting process and, by integration, obtain other main quantities like impulsivity and discount functions.

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