Discount rates inferred from decisions: An experimental study

Discount rates inferred from decisions: An experimental study

0.00 Avg rating0 Votes
Article ID: iaor19881057
Country: United States
Volume: 35
Issue: 3
Start Page Number: 270
End Page Number: 284
Publication Date: Mar 1989
Journal: Management Science
Authors: , ,
Keywords: decision
Abstract:

Two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4×4×4 factorial design: scenario (postponing a receipt, postponing a payment, expediting a receipt, expediting a payment), time delay (0.5, 1, 2, and 4 years), and size of cashflow ($40, $200, $1000, and $5000). Individual discount rates were inferred from the responses, and then used to test competitively four hypotheses regarding the behavior of discount rates. The classical hypothesis asserting that the discount rate is uniform across scenarios, time delays, and sums of cashflow was flatly rejected. A market segmentation approach was found lacking. The results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value, and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position.

Reviews

Required fields are marked *. Your email address will not be published.