It is standard practice in economic evaluation and in any economic analysis of future events to assume the discounted utility model on the part of economic agents. This paper compares the discounted utility model with three hyperbolic discounting models with respect to private and social financial benefits. The discounting models are fitted using non-linear regression techniques to data collected from the general public. Regression analysis is then used to test the theoretical validity of the models. The main test is whether the period of years for which the benefit is to be delayed is a statistically significant predictor of the respective values of the discounted utility model and the three hyperbolic discounting models. This tests whether these discounting models are satisfactory representations of the individuals' intertemporal preferences. The results show that there is evidence in favour of hyperbolic discounting models over the discounted utility model. There were not any statistically significant differences in the discounting models fitted for the private and social financial benefits. The regression results were very similar for the private and social financial benefits. (C) 2000 Elsevier Science B.V. All rights reserved. PsycINFO classification: 2340 JEL classification: D90.
Bibliographical noteHERU is funded by the Chief Scientist Office of the Scottish Executive Health Department. This study received financial support from the Nuffield Foundation and the NHS R&D Health Technology Assessment Programme (project 94/35/1). The views expressed in this paper are those of the authors and not necessarily those of the Standing Group on Health Technology Assessment, the HTA Commissioning Board, the SGHT Panel members, the Department of Health or the Scottish Executive Health Department.
- time preference
- hyperbolic discounting
- DELAYED REWARDS
- PREFERENCE REVERSALS