Neuroeconomics and hyperbolic discouting

Abstract

The exponential discounting method is today the most used in economics, and it has been the dominant discounting method for many years. However there are many economists that have started to question this method. One of the reasons for this is that it does not capture the way we humans tend to behave in many types of discounting situations. In this assignment I will introduce the hyperbolic discounting method. This is a more flexible discounting function that opens for human irrationality and preference reversals. The brain holds the answer too many of the questions about human behaviour. Over the last years a field called neuroeconomcs have captured the attention of many economic researchers. Neuroeconmics opens the door for neuroscience into the economic theory. Although this is a young field in economics it has produced a lot of interesting discoveries. By using tools from neuroscience we are able to understand the physiological process that finds place when we are facing different kinds of economic decisions, like discounting decisions. I start my theses by giving an introduction to this research, and present some of the discoveries that have been done. I will then use the knowledge form neuroeconomics to see if it can enlighten the discounting theory. Then I will present a framework I have made, this is a tool to analyze some of the decision we makes. At the end of my assignment I will present a pilot of an experiment that I have performed. This is a discounting experiment to se what discounting method that fits the subjects in the experiment best. However I have just done a pilot for this experiment so the number of subjects that were participating is not enough to make any certain conclusions, but I will present a analyze of the material I got from the experiment. I will also give a run trough of the process of performing the pilot.