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Loss Aversion and Intertemporal Choice: A Laboratory Investigation

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  • Oxoby, Robert J.

    ()
    (University of Calgary)

  • Morrison, William G.

    ()
    (Wilfrid Laurier University)

Abstract

We present results from a laboratory study of loss aversion in the context of intertemporal choice. We investigate whether the provision of (windfall) endowments results in different elicited discount rates relative to subjects who earn income or earn and retain the income for a period before making intertemporal decisions. We hypothesize that loss aversion in an intertemporal choice yields higher discount rates among subjects earning and retaining. Our results support this hypothesis: among subjects who earn and retain their income we elicit substantially higher discount rates relative to those experiencing a windfall gain.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 4854.

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Length: 14 pages
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:iza:izadps:dp4854

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Keywords: intertemporal choice; discount rates; experiments;

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  1. Todd L. Cherry & Peter Frykblom & Jason F. Shogren, 2002. "Hardnose the Dictator," American Economic Review, American Economic Association, American Economic Association, vol. 92(4), pages 1218-1221, September.
  2. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer, Springer, vol. 2(2), pages 107-127, December.
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