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Optimal dividend distribution policy from the perspective of the impatient and loss-averse investor

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  • Yang, Yang
  • Shoji, Isao
  • Kanehiro, Sumei
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    Abstract

    This paper discusses a problem concerning intertemporal decision-making under uncertainty when its subject has psychological biases. Here, we consider an investment company as a decision maker that invests money from investors in a financial asset and pays some dividend every period depending on the performance of the investment. On the other hand, we assume investors have such psychological biases as inconsistent time preference and loss aversion. Through numerical experiments we show that the optimal dividend distribution under inconsistent time preference and loss aversion is quite different from the distribution without these psychological factors, and that combinations of the two factors produce various patterns of dividend distribution.

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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics).

    Volume (Year): 38 (2009)
    Issue (Month): 3 (June)
    Pages: 534-540

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    Handle: RePEc:eee:soceco:v:38:y:2009:i:3:p:534-540

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    Web page: http://www.elsevier.com/locate/inca/620175

    Related research

    Keywords: Time inconsistent preference Loss aversion Quasi-hyperbolic discounting Reference-dependent preference Intertemporal choice;

    References

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    1. Shapiro, Jesse M., 2005. "Is there a daily discount rate? Evidence from the food stamp nutrition cycle," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 303-325, February.
    2. Fudenberg, Drew & Levine, David, 2006. "A Dual-Self Model of Impulse Control," Scholarly Articles 3196335, Harvard University Department of Economics.
    3. Laibson, David I., 1997. "Golden Eggs and Hyperbolic Discounting," Scholarly Articles 4481499, Harvard University Department of Economics.
    4. Karp, Larry, 2004. "Global Warming and Hyperbolic Discounting," Department of Agricultural & Resource Economics, UC Berkeley, Working Paper Series, Department of Agricultural & Resource Economics, UC Berkeley qt5zh730nc, Department of Agricultural & Resource Economics, UC Berkeley.
    5. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, Econometric Society, vol. 47(2), pages 263-91, March.
    6. Tversky, Amos & Kahneman, Daniel, 1991. "Loss Aversion in Riskless Choice: A Reference-Dependent Model," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 106(4), pages 1039-61, November.
    7. Isabelle Brocas & Juan D. Carrillo, 2004. "Entrepreneurial Boldness and Excessive Investment," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(2), pages 321-350, 06.
    8. Ahumada, Hildegart A. & Garegnani, Maria Lorena, 2007. "Testing hyperbolic discounting in consumer decisions: Evidence for Argentina," Economics Letters, Elsevier, vol. 95(1), pages 146-150, April.
    9. Brocas, Isabelle & Carrillo, Juan D, 2001. " Rush and Procrastination under Hyperbolic Discounting and Interdependent Activities," Journal of Risk and Uncertainty, Springer, Springer, vol. 22(2), pages 141-64, March.
    10. Laibson, David, 1998. "Life-cycle consumption and hyperbolic discount functions," European Economic Review, Elsevier, vol. 42(3-5), pages 861-871, May.
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    Cited by:
    1. Breuer, Wolfgang & Rieger, M. Oliver & Soypak, K. Can, 2014. "The behavioral foundations of corporate dividend policy a cross-country analysis," Journal of Banking & Finance, Elsevier, vol. 42(C), pages 247-265.

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