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The term structure of psychological discount rates: Characteristics and functional forms

Author

Listed:
  • Hubert de La Bruslerie

    (IAE Paris - Sorbonne Business School, Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres, DRM - Dauphine Recherches en Management - Université Paris Dauphine-PSL - PSL - Université Paris Sciences et Lettres - CNRS - Centre National de la Recherche Scientifique)

  • Aboudou Ouattara

Abstract

The discounted utility theory is a cornerstone of financial theory, particularly in inter-temporal asset pricing and portfolio management. This theory questioning has opened a whole field of research in psychology, economics, and management, and has undergone several enhancements recently. Its violation seems widely established and opened the way for the building of a more efficient framework to understand the individual time preferences. One improvement is related to the refining of the knowledge on the psychological discount function that underlies inter-temporal choices. In fact, an individual’s time preferences may be characterized by various discount functions such as the exponential, Hernstein, Harvey, proportional, Laibson, Rachlin, hyperbolic and generalized hyperbolic discount functions. Empirical validation of these proposed psychological discount rate term structures to explain individual preferences and the distribution of their parameters in a given population has been the subject of a number of recent studies. These researches have insufficiently question the problem of the validity of the proposed function on a given population. The aim of this research is to empirically study the shape and parameters of psychological discount functions that characterized a given population. Based on the data collected through an experimental study, the violation of the discounted utility theory is confirmed, which means that time preferences could not be characterized by an exponential discount function. This finding is consistent with other empirical studies and shows that the population is characterized by a decreasing impatience. In addition, it shows that the population is characterized by a heterogeneity of the psychological discount functions.
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Hubert de La Bruslerie & Aboudou Ouattara, 2023. "The term structure of psychological discount rates: Characteristics and functional forms," Post-Print hal-03933031, HAL.
    • Handle: RePEc:hal:journl:hal-03933031
    DOI: 10.1007/978-3-031-24486-5_5
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    JEL classification:

    • C81 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Methodology for Collecting, Estimating, and Organizing Microeconomic Data; Data Access
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D11 - Microeconomics - - Household Behavior - - - Consumer Economics: Theory

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