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Subjective Evaluation Of Delayed Risky Outcomes: An Experimental Approach

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Author Info

  • Uri Ben-Zion

    ()
    (Dept. of Economics, Ben-Gurion University of the Negev, Israel)

  • Jan Pieter Krahnen

    (Department of Finance, Goethe Universitaet Frankfurt, Germany.)

  • TAL SHAVIT

    ()
    (Department of Management and Economics, The Open University of Israel, Israel)

Abstract

This paper uses experimental data to estimate the pure time discount rate for different lengths of times for riskless assets (bonds), and risky assets (delayed lotteries). In moving from the present time (t = 0) to the future, there is a very sharp decline (jump) in the subjective price of the assets for both buy and sell transactions. This jump corresponds to a large increase in the discount rate for the first period and a much lower discount rate for later periods (forward rate). The findings cast doubt on the relevance of the hyperbolic function approach to discounting.

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Bibliographic Info

Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 0709.

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Length: 34 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bgu:wpaper:0709

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Related research

Keywords: Willingness to accept (WTA); Willingness to pay (WTP); Intertemporal choice; Decision-making.;

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References

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  7. Uri Benzion & Amnon Rapoport & Joseph Yagil, 1989. "Discount Rates Inferred from Decisions: An Experimental Study," Management Science, INFORMS, vol. 35(3), pages 270-284, March.
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  11. Myerson, Joel & Green, Leonard & Scott Hanson, J. & Holt, Daniel D. & Estle, Sara J., 2003. "Discounting delayed and probabilistic rewards: Processes and traits," Journal of Economic Psychology, Elsevier, vol. 24(5), pages 619-635, October.
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  13. Krahnen, Jan Pieter & Rieck, Christian & Theissen, Erik, 1997. "Inferring risk attitudes from certainty equivalents: Some lessons from an experimental study," Journal of Economic Psychology, Elsevier, vol. 18(5), pages 469-486, September.
  14. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
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  17. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-61, April.
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Cited by:
  1. Uri Ben-Zion & Ahmad Mahajna & Ravid Bogaire & TAL SHAVIT, 2007. "Subjective Discount Rates Among Israeli Arabs And Israeli Jews," Working Papers 0710, Ben-Gurion University of the Negev, Department of Economics.

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