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An experimental investigation of direct subjective discount rates

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  • Uri Benzion
  • Alon Granot
  • Joseph Yagil

Abstract

Employing implicit discount rates (derived from subjects' cash-flow responses) previous experimental studies find that the order of magnitude of the implicit rates is higher than actual capital-market rates, and that the impact of time (t) and (S) of the cash-flow on discount rates (R) is negative. To circumvent the problem of possible misvaluation of the exponential function documented in the literature, this experimental study uses direct rather than implicit rates. The results demonstrate that the effect of t and S on R is positive. It is therefore suggested that in addition to implicit discount rates, direct rates too should be used in future research.

Suggested Citation

  • Uri Benzion & Alon Granot & Joseph Yagil, 1996. "An experimental investigation of direct subjective discount rates," Applied Economics Letters, Taylor & Francis Journals, vol. 3(1), pages 59-61.
    • Handle: RePEc:taf:apeclt:v:3:y:1996:i:1:p:59-61
    DOI: 10.1080/758525519
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    Cited by:

    1. John Curtis, 2002. "Estimates of fishermen's personal discount rate," Applied Economics Letters, Taylor & Francis Journals, vol. 9(12), pages 775-778.

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