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Intertemporal Tradeoffs for Gains and Losses: An Experimental Measurement of Discounted Utility

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  • Mohammed Abdellaoui
  • ArthurE. Attema
  • Han Bleichrodt

Abstract

This article provides a parameter-free measurement of utility in intertemporal choice and presents new and more robust evidence on the discounting of money outcomes. Intertemporal utility was concave for gains and convex for losses, consistent with a hypothesis put forward by Loewenstein and Prelec (1992) . Discount rates declined over time but less so than previously observed under the assumption of linear utility. For approximately 40% of our subjects constant discounting provided the best fit. The remaining 60% were most consistent with Harvey's (1986) power discounting. Our data provide little support for the popular quasi-hyperbolic model, which is widely used in economics today. We observed an asymmetry in the discounting of gains and losses that, unlike earlier findings, cannot be explained by a framing effect. Copyright � The Author(s). Journal compilation � Royal Economic Society 2009.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 120 (2010)
Issue (Month): 545 (06)
Pages: 845-866

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Handle: RePEc:ecj:econjl:v:120:y:2010:i:545:p:845-866

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Cited by:
  1. Nathalie Etchart-Vincent, 2009. "Probability weighting and the 'level' and 'spacing' of outcomes: An experimental study over losses," Post-Print hal-00395876, HAL.
  2. Thomas Epper & Helga Fehr-Duda & Adrian Bruhin, 2010. "Viewing the future through a warped lens: why uncertainty generates hyperbolic discounting," IEW - Working Papers 510, Institute for Empirical Research in Economics - University of Zurich.
  3. Mohammed Abdellaoui & Olivier l'Haridon & Corina Paraschiv, 2013. "Do Couples Discount Future Consequences Less than Individuals?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201320, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  4. Attema, Arthur E. & Brouwer, Werner B.F., 2012. "A test of independence of discounting from quality of life," Journal of Health Economics, Elsevier, vol. 31(1), pages 22-34.
  5. Jinrui Pan & Craig Webb & Horst Zank, 2013. "Discounting the Subjective Present and Future," The School of Economics Discussion Paper Series 1305, Economics, The University of Manchester.
  6. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
  7. Paola Manzini & Marco Mariotti & Luigi Mittone, 2006. "Choosing Monetary Sequences: Theory and Experimental Evidence," Working Papers 562, Queen Mary, University of London, School of Economics and Finance.
  8. Koichi Futagami & Takeo Hori, 2010. "A Non-Unitary Discount Rate Model," Discussion Papers in Economics and Business 10-26, Osaka University, Graduate School of Economics and Osaka School of International Public Policy (OSIPP).
  9. Mohammed Abdellaoui & Han Bleichrodt & Olivier l’Haridon, 2013. "Sign-dependence in intertemporal choice," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 225-253, December.
  10. Katarzyna Werner & Horst Zank, 2012. "Foundations for Prospect Theory Through Probability Midpoint Consistency," The School of Economics Discussion Paper Series 1210, Economics, The University of Manchester.
  11. Thomas Epper & Helga Fehr-Duda, 2012. "The missing link: Unifying risk taking and time discounting," ECON - Working Papers 096, Department of Economics - University of Zurich.
  12. Peter Wakker & Veronika Köbberling & Christiane Schwieren, 2007. "Prospect-theory’s Diminishing Sensitivity Versus Economics’ Intrinsic Utility of Money: How the Introduction of the Euro can be Used to Disentangle the Two Empirically," Theory and Decision, Springer, vol. 63(3), pages 205-231, November.
  13. Yehuda Izhakian, 2012. "Ambiguity Measurement," Working Papers 12-01, New York University, Leonard N. Stern School of Business, Department of Economics.

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