health and discounting

it seems a natural conclusion from the theory of temporal discounting is that individuals that expect to die soon should have high discount rates. that is, people in poor health will want things now, as opposed to in the future, even if the benifit now is slightly smaller. afterall, they may die before getting the future reward.

a new working paper suggests this is the case, but with a twist. they found high discount rates in the sick, but also in the very healthy. this is how they explain the high discount rate for health individuals:

according to Trostel & Taylor (2002) and Olsho (2006), the ability to enjoy consumption depends on an individual’s health, and the healthier an individual, the greater the enjoyment of the same commodity bundle. Because health generally declines over the life cycle, individuals should have a high subjective discount rate when healthy and, thus, enjoy the consumption while they still can.

also interesting, age was found to be significant for discount rate, but only until health was entered into the regression.

it's worth a read, although there are problems with the study such biased sample selection (mostly younger business owners).

related post on neural correlates of discounting

Labels: decision making, economics