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Subjective discount functions - an experimental approach

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  • Uri Benzion
  • Yochanan Shachmurove
  • Joseph Yagil

Abstract

This study estimates the degree of the exponential-function (EF) misvaluation and its variation with three parameters: time, the product price level and its growth rate, as well as with personal characteristics. The results suggest an undervaluation of the compound discounting formula given by the exponential function and an overvaluation of the simple-interest discounting function. Findings appear in line with the hyperbolic function and perhaps indirectly related to the overconfidence and overreaction phenomena. A possible implication of the study's findings is that at least part of the intertemporal-choice anomalous behaviour documented in the experimental literature of economic psychology can be attributed to misevaluation of the exponential function.

Suggested Citation

  • Uri Benzion & Yochanan Shachmurove & Joseph Yagil, 2004. "Subjective discount functions - an experimental approach," Applied Financial Economics, Taylor & Francis Journals, vol. 14(5), pages 299-311.
    • Handle: RePEc:taf:apfiec:v:14:y:2004:i:5:p:299-311
    DOI: 10.1080/0960310042000211579
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    Cited by:

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    2. Lahav, Eyal & Benzion, Uri & Shavit, Tal, 2010. "Subjective time discount rates among teenagers and adults: Evidence from Israel," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 39(4), pages 458-465, August.
    3. Antonios Antoniou & Emilios C. C Galariotis & Spyros I. Spyrou, 2006. "The effect of time-varying risk on the profitability of contrarian investment strategies in a thinly traded market: a Kalman filter approach," Post-Print hal-01096031, HAL.
    4. Gränsmark, Patrik, 2012. "Masters of our time: Impatience and self-control in high-level chess games," Journal of Economic Behavior & Organization, Elsevier, vol. 82(1), pages 179-191.
    5. Gränsmark, Patrik, 2010. "A Rib Less Makes you Consistent but Impatient: A Gender Comparison of Expert Chess Players," Working Paper Series 5/2010, Stockholm University, Swedish Institute for Social Research.
    6. Gonzalez, Nichel, 2017. "Different investors–different decisions: On individual use of gain, loss and interest rate information," Journal of Behavioral and Experimental Finance, Elsevier, vol. 15(C), pages 59-65.
    7. Christandl, Fabian & Fetchenhauer, Detlef, 2009. "How laypeople and experts misperceive the effect of economic growth," Journal of Economic Psychology, Elsevier, vol. 30(3), pages 381-392, June.
    8. George Emm Halkos & Theodore Krintas, 2006. "Behavioural and fundamental explanations of discounts on closed end funds: an empirical analysis," Applied Financial Economics, Taylor & Francis Journals, vol. 16(5), pages 395-404.
    9. Y. Bayer, B.J. Ruffle, R. Zultan, T. Dwolatzky, 2018. "Time preferences of older people with mild cognitive impairment," LCERPA Working Papers 0115, Laurier Centre for Economic Research and Policy Analysis, revised 30 May 2018.

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