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Gains and losses in intertemporal preferences: a behavioural study

Author

Listed:
  • Valeria Faralla

    ()

  • Francesca Benuzzi

    ()

  • Paolo Nichelli

    ()

  • Nicola Dimitri

    ()

Abstract

According to recent evidence (Frederick, Loewenstein, & O’Donoghue, 2002), the traditional Discounted Utility model (Samuelson, 1937) has a limited ability to describe realistic models of behaviour and indeed there are several documented empirical regularities that seem to contradict this statement both in certainty and uncertainty conditions. This study focused on one of the best documented anomalies: sign effect or gain-loss asymmetry (Frederick et al., 2002; Loewenstein & Prelec, 1992; Read, 2004). Specifically, the study investigated the intertemporal preference for symmetric monetary rewards and punishments in certain conditions, and the no wealth effects hypothesis (Dimitri, 2007) by asking subjects to choose between two positive or two negative euro amounts available at different points in time. The experimental design applied here followed the same behavioural pattern of the neuroeconomics’ study on monetary rewards realized by McClure et al. (2004). The results confirmed a gain-loss asymmetry at least for medium and large euro amount and suggested new directions of research.

Suggested Citation

  • Valeria Faralla & Francesca Benuzzi & Paolo Nichelli & Nicola Dimitri, 2010. "Gains and losses in intertemporal preferences: a behavioural study," Labsi Experimental Economics Laboratory University of Siena 029, University of Siena.
  • Handle: RePEc:usi:labsit:029
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    Keywords

    intertemporal preferences; gains; losses; certainty; sign effect .;

    JEL classification:

    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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