Discounting Behavior and the Magnitude Effect
AbstractWe evaluate the claim that individuals exhibit a magnitude effect in their discounting behavior, which is said to occur when higher discount rates are inferred from choices made with lower principals, all else being equal. If the effect is robust, as claimed, we should be able to see it using procedures that are more familiar to economists. Using data collected from a representative sample of adult Danes, we find statistically significant evidence of a small magnitude effect, at levels that are much smaller than is typically claimed. This evidence only surfaces if one carefully controls for unobserved individual heterogeneity in the population. And it disappears completely if we include discounting choices in which both options have some time delay.
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Bibliographic InfoPaper provided by Durham University Business School in its series Working Papers with number 2011_02.
Date of creation: 01 May 2011
Date of revision:
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-22 (All new papers)
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- Drichoutis, Andreas & Nayga, Rodolfo, 2012. "Do risk and time preferences have biological roots?," MPRA Paper 37320, University Library of Munich, Germany.
- Diego Ubfal, 2013.
"How General Are Time Preferences? Eliciting Good-Specific Discount Rates,"
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- Ubfal, Diego, 2012. "How General Are Time Preferences? Eliciting Good-Specific Discount Rates," IZA Discussion Papers 6774, Institute for the Study of Labor (IZA).
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