The Beta-Delta-DELTA Sweet Spot /
When solving discrete-time consumption models with present-biased time preferences, backwards induction generates equilibria that are non-robust in the sense that policy functions are often sensitive to parameter choices, including the modeler's choice of the time-step. The current paper identi...
Gespeichert in:
- 1. Verfasser:
- Körperschaft:
- Weitere Verfasser:
- Format:
- Elektronisch E-Book
- Sprache:
- Englisch
- Veröffentlicht:
-
Cambridge, Mass.
National Bureau of Economic Research
2023.
- Zusammenfassung:
-
When solving discrete-time consumption models with present-biased time preferences, backwards induction generates equilibria that are non-robust in the sense that policy functions are often sensitive to parameter choices, including the modeler's choice of the time-step. The current paper identifies a range of "sweet-spot" time-steps that (i) contains the psychologically relevant present bias horizons, and, (ii) generates numerically indistinguishable (i.e., robust) policy functions. This sweet spot includes both a computationally feasible range of discrete-time cases and the limiting continuous-time case (Harris and Laibson, 2013). Accordingly, researchers modeling present bias in buffer stock models can choose either discrete-time cases calibrated to be in the sweet spot or the analytically tractable continuous-time case; these approaches yield essentially identical policy functions.
- Umfang:
- 1 online resource: illustrations (black and white);
- Anmerkungen:
- January 2023.
- Schlagworte:
-