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Estimating Individual Discount Rates in Denmark: A Field Experiment

  • Glenn W. Harrison
  • Morten I. Lau
  • Melonie B. Williams

We estimate individual discount rates with respect to time streams of money using controlled laboratory experiments. These discount rates are elicited by means of field experiments involving real monetary rewards. The experiments were carried out across Denmark using a representative sample of 268 people between 19 and 75 years of age. Individual discount rates are estimated for various households differentiated by socio-demographic characteristics such as income and age. Our conclusions are that discount rates are constant over the 12-month to 3-year horizons used in these experiments, and that discount rates vary substantially with respect to several socio-demographic variables. Hence we conclude that it would be reasonable to assume constant discount rates for specific household types, but not the same rates across all households.

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 92 (2002)
Issue (Month): 5 (December)
Pages: 1606-1617

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Handle: RePEc:aea:aecrev:v:92:y:2002:i:5:p:1606-1617
Note: DOI: 10.1257/000282802762024674
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  1. Harrison, Glenn W, 1992. "Theory and Misbehavior of First-Price Auctions: Reply," American Economic Review, American Economic Association, vol. 82(5), pages 1426-43, December.
  2. Pender, John L., 1996. "Discount rates and credit markets: Theory and evidence from rural india," Journal of Development Economics, Elsevier, vol. 50(2), pages 257-296, August.
  3. 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.
  4. Marjorie K. Shelley, 1993. "Outcome Signs, Question Frames and Discount Rates," Management Science, INFORMS, vol. 39(7), pages 806-815, July.
  5. Saul Pleeter & John T. Warner, 2001. "The Personal Discount Rate: Evidence from Military Downsizing Programs," American Economic Review, American Economic Association, vol. 91(1), pages 33-53, March.
  6. Loewenstein, George, 1987. "Anticipation and the Valuation of Delayed Consumption," Economic Journal, Royal Economic Society, vol. 97(387), pages 666-84, September.
  7. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer, vol. 2(2), pages 107-127, December.
  8. Ausubel, Lawrence M, 1991. "The Failure of Competition in the Credit Card Market," American Economic Review, American Economic Association, vol. 81(1), pages 50-81, March.
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