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Loss Aversion and Intertemporal Choice: A Laboratory Investigation

Author

Listed:
  • Oxoby, Robert J.

    () (University of Calgary)

  • Morrison, William G.

    () (Wilfrid Laurier University)

Abstract

We present results from a laboratory study of loss aversion in the context of intertemporal choice. We investigate whether the provision of (windfall) endowments results in different elicited discount rates relative to subjects who earn income or earn and retain the income for a period before making intertemporal decisions. We hypothesize that loss aversion in an intertemporal choice yields higher discount rates among subjects earning and retaining. Our results support this hypothesis: among subjects who earn and retain their income we elicit substantially higher discount rates relative to those experiencing a windfall gain.

Suggested Citation

  • Oxoby, Robert J. & Morrison, William G., 2010. "Loss Aversion and Intertemporal Choice: A Laboratory Investigation," IZA Discussion Papers 4854, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp4854
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    References listed on IDEAS

    as
    1. Todd L. Cherry & Peter Frykblom & Jason F. Shogren, 2002. "Hardnose the Dictator," American Economic Review, American Economic Association, pages 1218-1221.
    2. Maribeth Coller & Melonie Williams, 1999. "Eliciting Individual Discount Rates," Experimental Economics, Springer;Economic Science Association, vol. 2(2), pages 107-127, December.
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    More about this item

    Keywords

    intertemporal choice; discount rates; experiments;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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