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8-2007

DEPFID Working Paper 8/2007 - Abstract

A note on the reward-loss duality in time consistent decisions

Nicola Dimitri

Individuals choosing among payoffs available at different points in time are considered as rational if they are time consistent. This occurs when their plans of actions are effectively implemented. With time consistent decision makers, the paper points out an interesting dual behavior related to, symmetric, rewards and losses. In a simplest two payoffs context rationality implies opting for a late (earlier), higher (lower), reward and an earlier (delayed), lower (higher) loss. Since rational agents either choose the highest or the lowest available payoff, this raises the question as to whether dynamic rationality has to do with patience or payoff concern.

Keywords: rewards, losses, time consistency.

JEL Classification: D90.

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