Affordable Access

Time-consistent stopping under decreasing impatience

Authors
  • Huang, Yu-Jui
  • Nguyen-Huu, Adrien
Publication Date
Feb 01, 2018
Source
HAL-UPMC
Keywords
Language
English
License
Unknown
External links

Abstract

Under non-exponential discounting, we develop a dynamic theory for stopping problems in continuous time. Our framework covers discount functions that induce decreasing impatience. Due to the inherent time inconsistency, we look for equilibrium stopping policies, formulated as fixed points of an operator. Under appropriate conditions, fixed-point iterations converge to equilibrium stopping policies. This iterative approach corresponds to the hierarchy of strategic reasoning in game theory and provides “agent-specific” results: it assigns one specific equilibrium stopping policy to each agent according to her initial behavior. In particular, it leads to a precise mathematical connection between the naive behavior and the sophisticated one. Our theory is illustrated in a real options model.

Report this publication

Statistics

Seen <100 times