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POSSIBILITY OF DYING AS A UNIFIED EXPLANATION OF WHY WE DISCOUNT THE FUTURE, GET WEAKER WITH AGE, AND DISPLAY RISK-AVERSION

Authors

  • BHAGWAN CHOWDHRY

    1. Chowdhry: Professor of Finance, UCLA Anderson School, 110 Westwood Plaza, Los Angeles, CA 90077. Phone 310-825-5883, Fax 310-206-5455, E-mail bhagwan@anderson.ucla.edu
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    • I thank Bruce Carlin, Mark Garmaise, David Hirshleifer, David Levine, and anonymous referees for reading the paper carefully and providing many useful comments. I am grateful to Eduardo Schwartz for help in formulating the problem elegantly in continuous time that allowed me to obtain the main results of the paper analytically. I also appreciate Michael Brennan, John Cochrane, and Steve Ross' encouragement.


Abstract

I formulate a simple and parsimonious evolutionary model that shows that because most species face a possibility of dying because of external factors, called extrinsic mortality in the biology literature, it can simultaneously explain (a) why we discount the future, (b) get weaker with age, and (c) display risk-aversion. The paper suggests that testable restrictions—across species, across time, or across genders—among time preference, aging, and risk-aversion could be analyzed in a simple framework (JEL A10, D90).

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