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Subjective Evaluation Of Delayed Risky Outcomes: An Experimental Approach

  • Uri Ben-Zion

    ()

    (Dept. of Economics, Ben-Gurion University of the Negev, Israel)

  • Jan Pieter Krahnen

    (Department of Finance, Goethe Universitaet Frankfurt, Germany.)

  • TAL SHAVIT

    ()

    (Department of Management and Economics, The Open University of Israel, Israel)

This paper uses experimental data to estimate the pure time discount rate for different lengths of times for riskless assets (bonds), and risky assets (delayed lotteries). In moving from the present time (t = 0) to the future, there is a very sharp decline (jump) in the subjective price of the assets for both buy and sell transactions. This jump corresponds to a large increase in the discount rate for the first period and a much lower discount rate for later periods (forward rate). The findings cast doubt on the relevance of the hyperbolic function approach to discounting.

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File URL: http://in.bgu.ac.il/en/humsos/Econ/Working/0709.pdf
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Paper provided by Ben-Gurion University of the Negev, Department of Economics in its series Working Papers with number 0709.

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Length: 34 pages
Date of creation: 2007
Date of revision:
Handle: RePEc:bgu:wpaper:0709
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  1. Thaler, Richard, 1981. "Some empirical evidence on dynamic inconsistency," Economics Letters, Elsevier, vol. 8(3), pages 201-207.
  2. Myerson, Joel & Green, Leonard & Scott Hanson, J. & Holt, Daniel D. & Estle, Sara J., 2003. "Discounting delayed and probabilistic rewards: Processes and traits," Journal of Economic Psychology, Elsevier, vol. 24(5), pages 619-635, October.
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  7. Caplin, Andrew & Leahy, John, 1997. "Psychological Expected Utility Theory and Anticipatory Feelings," Working Papers 97-37, C.V. Starr Center for Applied Economics, New York University.
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  10. Laibson, David, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, MIT Press, vol. 112(2), pages 443-77, May.
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  13. Read, Daniel, 2001. " Is Time-Discounting Hyperbolic or Subadditive?," Journal of Risk and Uncertainty, Springer, vol. 23(1), pages 5-32, July.
  14. Smith, Vernon L & Walker, James M, 1993. "Monetary Rewards and Decision Cost in Experimental Economics," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 245-61, April.
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  16. David I. Laibson & Andrea Repetto & Jeremy Tobacman, 1998. "Self-Control and Saving for Retirement," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(1), pages 91-196.
  17. Kachelmeier, Steven J & Shehata, Mohamed, 1992. "Examining Risk Preferences under High Monetary Incentives: Experimental Evidence from the People's Republic of China," American Economic Review, American Economic Association, vol. 82(5), pages 1120-41, December.
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