Two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 \times 4 \times 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.
[1]
T. Koopmans.
Stationary Ordinal Utility and Impatience
,
1960
.
[2]
A. Tversky,et al.
Prospect Theory : An Analysis of Decision under Risk Author ( s ) :
,
2007
.
[3]
W. Mischel,et al.
Preference for delayed reinforcement and social responsibility.
,
1961,
Journal of abnormal and social psychology.
[4]
I. Fisher,et al.
The theory of interest
,
1956
.
[5]
A. A. Robichek,et al.
CONCEPTUAL PROBLEMS IN THE USE OF RISK‐ADJUSTED DISCOUNT RATES*
,
1966
.
[6]
R. Thaler.
Some empirical evidence on dynamic inconsistency
,
1981
.
[7]
G. Loewenstein.
Frames of mind in intertemporal choice
,
1988
.
[8]
M. K. Stevenson,et al.
A Discounting Model for Decisions With Delayed Positive or Negative Outcomes
,
1986
.
[9]
R. Thaler,et al.
An Economic Theory of Self-Control
,
1977,
Journal of Political Economy.