Time Discounting: Psychophysics of Intertemporal and Probabilistic Choices

Abstract

  Intertemporal and probabilistic choices have been attracting attention in behavioral neuroeconomics. Although recent advances in neuroeconomics demonstrated neural processes underlying intertemporal and probabilistic choices, the roles of psychophysical effects on the choices have largely been understudied. In this paper, we review the roles of psychophysical effects in time and risk attitudes. It is shown that Loewenstein-Prelec’s generalized hyperbolic temporal discount function (Loewenstein and Prelec (1992)) and Prelec’s probability weighting function (Prelec (1998)) are naturally derived from psychophysical laws of time-perception.