CHAPTER 24 TIME INCONSISTENCY AND HEALTH
CHAPTER 24 TIME INCONSISTENCY AND HEALTH
Jay's quandary At midnight,Jay is deciding what route to take home. El Camino is faster but will N take him past a fast food Stanford Alma St restaurant. The midnight version of Jay E日Camino does not want to have fast food. Fast food The 12:15 version of Jay will want fast food. Which route should he take? Jay's house Which route should we want him to take? Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Jay’s quandary At midnight, Jay is deciding what route to take home. El Camino is faster but will take him past a fast food restaurant. The midnight version of Jay does not want to have fast food. The 12:15 version of Jay will want fast food. Which route should he take? Which route should we want him to take?
THE BETA-DELTA DISCOUNTING MODEL Chapter 24:Time inconsistency and health
Chapter 24: Time inconsistency and health THE BETA-DELTA DISCOUNTING MODEL
Beta-delta discounting Individuals derive utility not only from present joys but also from the anticipation of future happiness. People do not maximize simply their instantaneous utility levels but rather some function of present and future utility. This is why we pay now for tickets to concerts months in advance and get flu vaccinations that will not pay off until flu season. Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics Beta-delta discounting Individuals derive utility not only from present joys but also from the anticipation of future happiness. People do not maximize simply their instantaneous utility levels but rather some function of present and future utility. This is why we pay now for tickets to concerts months in advance and get flu vaccinations that will not pay off until flu season
Beta-delta discounting To account for this fact,economists model overall utility as a weighted sum of instantaneous utility levels from the present period and all future periods: Uoverall=aloday+bUtomorrow+CUthe mext day+··, The coefficients a,b and c are weights that represent the fact that individuals do not necessarily value utility in all periods equally. People value utility now more than utility later. ·Thus a>b>c Bhattacharya,Hyde and Tu-HealthEconomics
Bhattacharya, Hyde and Tu – Health Economics To account for this fact, economists model overall utility as a weighted sum of instantaneous utility levels from the present period and all future periods: Uoverall = aUtoday + bUtomorrow + cUthe next day + · · · • The coefficients a, b and c are weights that represent the fact that individuals do not necessarily value utility in all periods equally. • People value utility now more than utility later. • Thus a > b > c Beta-delta discounting