The Merton problem with hyperbolic discounting
Friday, June 11, 2010 - 2:00pm - 3:30pm
There is strong evidence that individuals discount future utilities at non-constant rates. The notion of optimality then disappears, because of time inconsistency (see the Tuesday colloquium) and rational behaviour then centers around equilibrium strategies. I will investigate portfolio management with hyperbolic discounting (the discount rate increases with time), and I will show that this may explain some well-known puzzles of portfolio management. This is joint work with Traian Pirvu.