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Homework Assignment, Time Inconsistent Preference

February 25, 2004

From this , the following quote from Matthew Rabin : "...We call this "time inconsistent preference," and it's hard to convey how categorically, how unambiguously economists have been wrong about this. Economists have assumed a time-consistent discounting, that to whatever degree we care more about today than tomorrow, we care that same amount more about 7 days from now than about 8 days from now. Every single study done by psychologists, studying humans, rats, pigeons, always shows this other kind of discounting, this hyperbolic discounting which captures time-inconsistent preferences, the fact that we care much more about today than tomorrow, that that's a bigger difference to us than how much more we care about 7 days from now vs. 8 days from now. ..."

Your homework assignment is show that the decreasing rate of time decay in the value of a good is NOT in conflict with Austrian Economics, but rather is a necessary implication of the subjective theory of value. Extra credit for any pertinent references from Mises.org.

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