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Decreasing term structure of psychological discount rates: Experimental estimation and determinants

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  • de La Bruslerie, Hubert

Abstract

Many empirical and behavioral studies identify a decreasing slope in the term structure of subjective discount rates. Using an experimental methodology based on “free-time” relative comparisons, this paper aims to identify in individual behaviors whether agents see their psychological value of time as decreasing or not. We elicit the negative shape of the subjective discount rates. They can be parameterized using two variables, one specifying the instantaneous time preference and the other characterizing the slope of the term structure. A trade-off law is identified between these two parameters. We show that the term structure of psychological rates depends strongly on gender, but appears not to be linked with life expectancy. We also question the cross-relationship between risk aversion and time preference. From a theoretical point of view, these two variables stand as two different and independent dimensions. However, empirically, the time preference attitude seems to be directly influenced by the risk attitude.

Suggested Citation

  • de La Bruslerie, Hubert, 2015. "Decreasing term structure of psychological discount rates: Experimental estimation and determinants," Journal of Behavioral and Experimental Finance, Elsevier, vol. 6(C), pages 13-26.
    • Handle: RePEc:eee:beexfi:v:6:y:2015:i:c:p:13-26
    DOI: 10.1016/j.jbef.2015.02.006
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    Cited by:

    1. OUATTARA, Aboudou & DE LA BRUSLERIE, Hubert, 2015. "The term structure of psychological discount rate: characteristics and functional forms," MPRA Paper 75111, University Library of Munich, Germany.

    More about this item

    Keywords

    Hyperbolic discounting; Time preference; Behavioral economics; Psychological time value; Risk aversion;
    All these keywords.

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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