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Subjective Evaluation Of Delayed Risky Outcomes: An Experimental Approach

Author

Listed:
  • 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)

Abstract

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.

Suggested Citation

  • Uri Ben-Zion & Jan Pieter Krahnen & TAL SHAVIT, 2007. "Subjective Evaluation Of Delayed Risky Outcomes: An Experimental Approach," Working Papers 0709, Ben-Gurion University of the Negev, Department of Economics.
    • Handle: RePEc:bgu:wpaper:0709
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    File URL: http://in.bgu.ac.il/en/humsos/Econ/Workingpapers/0709.pdf
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    References listed on IDEAS

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    Cited by:

    1. Mahajna, Ahmad & Benzion, Uri & Bogaire, Ravid & Shavit, Tal, 2008. "Subjective discount rates among Israeli Arabs and Israeli Jews," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(6), pages 2513-2522, December.

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    More about this item

    Keywords

    Willingness to accept (WTA); Willingness to pay (WTP); Intertemporal choice; Decision-making.;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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