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Time for Tea: Measuring Discounting for Money and Consumption without the Utility Confound

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  • Abdellaoui, Mohammed
  • Kemel, Emmanuel
  • Panin, Amma
  • Vieider, Ferdinand

Abstract

We present a novel method—called risk equivalents—that uses a single measure to elicit discount rates while avoiding concerns about the shape of the utility function. The method is valid under discounted expected utility (DEU), and also under several of its behavioral extensions including more general models that account for a biased perception of time and risk (such as time- or likelihood-insensitivity). We implement the method in a field experiment in India measuring inter-temporal discount rates for money and the consumption of tea.We empirically observe that discount rates elicited by traditional methods are related to utility curvature, whereas discount rates elicited by risk equivalents are not. Risk equivalents also mitigate differences in discount rates measured for money and for tea, suggesting that unaddressed utility curvature may play a role in results that demonstrate good-specific discounting. Risk equivalents are general, fast and tractable, three features that are particularly useful in field studies.

Suggested Citation

  • Abdellaoui, Mohammed & Kemel, Emmanuel & Panin, Amma & Vieider, Ferdinand, 2023. "Time for Tea: Measuring Discounting for Money and Consumption without the Utility Confound," CEPR Discussion Papers 17995, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:17995
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    Cited by:

    1. Benjamin Enke & Thomas Graeber & Ryan Oprea, 2023. "Complexity and Hyperbolic Discounting," NBER Working Papers 31047, National Bureau of Economic Research, Inc.

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    More about this item

    JEL classification:

    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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