Term structure of psychological interest rates: A behavioural test
AbstractMany empirical and behavioral studies underline the idea of a non-flat term structure of subjective interest rates with a decreasing slope. Using an empirical test, this paper aims at identifying in individual behaviors whether agents see their psychological value of time decreasing or not. We show that the subjective interest rate follows a negatively sloped term structure. It can be parameterized using two variables, one specifying the instantaneous time preference, the other characterizing the slope of the term structure. A trade-off law called “balancing pressure 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 of choice. However, empirically, both time preference attitude and slope seem directly influenced by risk attitude.
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Bibliographic InfoPaper provided by Paris Dauphine University in its series Economics Papers from University Paris Dauphine with number 123456789/3033.
Date of creation: Dec 2009
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psychological time value; behavioural economics; time preference; risk aversion; hyperbolic discounting;
Find related papers by JEL classification:
- D3 - Microeconomics - - Distribution
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- C9 - Mathematical and Quantitative Methods - - Design of Experiments
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