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Subjective discount functions - an experimental approach

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Author Info

  • Uri Benzion
  • Yochanan Shachmurove
  • Joseph Yagil

Abstract

This study estimates the degree of the exponential-function (EF) misvaluation and its variation with three parameters: time, the product price level and its growth rate, as well as with personal characteristics. The results suggest an undervaluation of the compound discounting formula given by the exponential function and an overvaluation of the simple-interest discounting function. Findings appear in line with the hyperbolic function and perhaps indirectly related to the overconfidence and overreaction phenomena. A possible implication of the study's findings is that at least part of the intertemporal-choice anomalous behaviour documented in the experimental literature of economic psychology can be attributed to misevaluation of the exponential function.

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File URL: http://www.tandfonline.com/doi/abs/10.1080/0960310042000211579
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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Applied Financial Economics.

Volume (Year): 14 (2004)
Issue (Month): 5 ()
Pages: 299-311

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Handle: RePEc:taf:apfiec:v:14:y:2004:i:5:p:299-311

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References

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  7. Benzion Uri & Granot Alon & Yagil Joseph, 1992. "The valuation of the exponential function and implications for derived interest rates," Economics Letters, Elsevier, vol. 38(3), pages 299-303, March.
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Citations

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Cited by:
  1. Chikashi Tsuji, 2006. "Overreactions in the options markets in Japan," Applied Financial Economics Letters, Taylor and Francis Journals, vol. 2(2), pages 115-121, March.
  2. Gränsmark, Patrik, 2012. "Masters of Our Time: Impatience and Self-control in High-level Chess Games," Working Paper Series 2/2012, Swedish Institute for Social Research.
  3. Lahav, Eyal & Benzion, Uri & Shavit, Tal, 2010. "Subjective time discount rates among teenagers and adults: Evidence from Israel," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 458-465, August.
  4. Christandl, Fabian & Fetchenhauer, Detlef, 2009. "How laypeople and experts misperceive the effect of economic growth," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 381-392, June.
  5. Joseph Eisenhauer & Luigi Ventura, 2006. "The prevalence of hyperbolic discounting: some European evidence," Applied Economics, Taylor & Francis Journals, vol. 38(11), pages 1223-1234.
  6. Gränsmark, Patrik, 2010. "A Rib Less Makes you Consistent but Impatient: A Gender Comparison of Expert Chess Players," Working Paper Series 5/2010, Swedish Institute for Social Research.
  7. Antonios Antoniou & Emilios Galariotis & Spyros Spyrou, 2006. "The effect of time-varying risk on the profitability of contrarian investment strategies in a thinly traded market: a Kalman filter approach," Applied Financial Economics, Taylor & Francis Journals, vol. 16(18), pages 1317-1329.
  8. Gränsmark, Patrik, 2012. "Masters of our time: Impatience and self-control in high-level chess games," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 179-191.

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