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Discounting behavior: A reconsideration
Department of Economics, Copenhagen Business School, Copenhagen, Denmark.
Department of Risk Management & Insurance and Center for the Economic Analysis of Risk, Robinson College of Business, Georgia State University, United States.
Department of Economics, Copenhagen Business School, Copenhagen, Denmark; Durham University Business School, Durham University, UK.
Dean's Behavioral Economics Laboratory, Robinson College of Business and Andrew Young School of Policy Studies, Georgia State University, United States.ORCID iD: 0000-0001-8616-3318
2014 (English)In: European Economic Review, ISSN 0014-2921, E-ISSN 1873-572X, Vol. 71, p. 15-33Article in journal (Refereed) Published
Abstract [en]

We re-evaluate the theory, experimental design and econometrics behind claims that individuals exhibit non-constant discounting behavior. Theory points to the importance of controlling for the non-linearity of the utility function of individuals, since the discount rate is defined over time-dated utility flows and not flows of money. It also points to a menagerie of functional forms to characterize different types of non-constant discounting behavior. The implied experimental design calls for individuals to undertake several tasks to allow us to identify these models, and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments. The implied econometrics calls for structural estimation of th`e theoretical models, allowing for joint estimation of utility functions and discounting functions. Using data collected from a representative sample of 413 adult Danes in 2009, we draw surprising conclusions. Assuming an exponential discounting model we estimate discount rates to be 9% on average. We find no evidence to support quasi-hyperbolic discounting or "fixed cost" discounting, and only modest evidence to support other specifications of non-constant discounting. Furthermore, the evidence for non-constant discounting, while statistically significant, is not economically significant in terms of the size of the estimated discount rates. We undertake extensive robustness checks on these findings, including a detailed review of the previous, comparable literature.

Place, publisher, year, edition, pages
Elsevier, 2014. Vol. 71, p. 15-33
Keywords [en]
Behavioral microeconomics, Discounting behavior, Field experiments, consumption behavior, discount rate, econometrics, experimental design, microeconomics, theoretical study
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:oru:diva-68845DOI: 10.1016/j.euroecorev.2014.06.009ISI: 000343843800002Scopus ID: 2-s2.0-84908021243OAI: oai:DiVA.org:oru-68845DiVA, id: diva2:1247326
Available from: 2018-09-11 Created: 2018-09-11 Last updated: 2018-09-13Bibliographically approved

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  • apa
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  • nn-NB
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  • Other locale
More languages
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