Avoiding the Curves: Direct Elicitation of Time Preferences
AbstractWe propose and test a new method for eliciting curvature-controlled discount rates that are invariant to the form of the utility function. The advantage of this method is that individual discount rates can be obtained without knowledge of risk attitude or parametric assumptions about the form of the utility function. We compare our single elicitation method that does not require estimation of the utility function to the Andersen et al. (2008) double elicitation technique in which the utility function and discount rates are jointly estimated. We use a laboratory experiment to perform a within-subjects comparison of discount rates from these two methods and find consistent results, which is reassuring given the wide range of estimates in the literature. In addition, the estimated discount rates in our study are "plausibly low" in contrast to the vast majority of other discount rate studies. Average discount rates are estimated to be between 12.2 and 14.1 percent. Our results are robust to relaxing the expected utility assumption of linearity in the probabilities, as we find little evidence of probability weighting in our data.
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Bibliographic InfoPaper provided by Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University in its series Experimental Economics Center Working Paper Series with number 2011-01.
Date of creation: Jan 2011
Date of revision: Mar 2012
Other versions of this item:
- Susan Laury & Melayne McInnes & J. Todd Swarthout, 2012. "Avoiding the curves: Direct elicitation of time preferences," Journal of Risk and Uncertainty, Springer, vol. 44(3), pages 181-217, June.
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
- C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-01-30 (All new papers)
- NEP-EXP-2011-01-30 (Experimental Economics)
- NEP-UPT-2011-01-30 (Utility Models & Prospect Theory)
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- Ubfal, Diego, 2012.
"How General Are Time Preferences? Eliciting Good-Specific Discount Rates,"
IZA Discussion Papers
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- Diego Ubfal, 2013. "How General Are Time Preferences? Eliciting Good-Specific Discount Rates," Working Papers 473, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
- Blake, David & Wright, Douglas & Zhang, Yumeng, 2011. "Age dependent investing: Optimal funding and investment strategies in defined contribution pension plans when members are rational life cycle financial planners," MPRA Paper 34277, University Library of Munich, Germany.
- Holden, Stein, 2013. "High discount rates: - An artifact caused by poorly framed experiments or a result of people being poor and vulnerable?," CLTS Working Papers 8/13, Centre for Land Tenure Studies, Norwegian University of Life Sciences.
- Cheung, Stephen L., 2013. "On the Elicitation of Time Preference under Conditions of Risk," Working Papers 2013-15, University of Sydney, School of Economics.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (J. Todd Swarthout).
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