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Eliciting Individual Discount Rates

Published online by Cambridge University Press:  14 March 2025

Maribeth Coller  and
Melonie B. Williams
Maribeth Coller*
Affiliation:
School of Accounting, The Darla Moore School of Business, University of South Carolina, Columbia, SC 29208, (803) 777-6643
Melonie B. Williams*
Affiliation:
U. S. EPA, Office of Policy, 401 M St. SW, Mail Code 2172, Washington, DC 20460, (202) 260-7978
*
email: [email protected]
email: [email protected]
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Abstract

Controlled laboratory conditions using monetary incentives have been utilized in previous studies that examine individual discount rates, and researchers have found several apparently robust anomalies. We conjecture that subject behavior in these experiments may be affected by (uncontrolled) factors other than discount rates. We address some experimental design issues and report a new series of experiments designed to elicit individual discount rates. Our primary treatments include: (i) informing subjects of the annual and effective interest rates associated with alternative payment streams, and (ii) informing subjects of current market interest rates. We also test for the effect of real (vs. hypothetical) payments and for the effect of delaying both payment options (vs. offering an immediate payment option). The statistical analysis uses censored data techniques to account for the interactions between field and lab incentives. Each of the information treatments appears to reduce revealed discount rates. When both types of information are provided, annual rates in the interval of 15%—17.5% are revealed, whereas rates of 20%-25% are revealed in the control session. Each of the treatments also lowers the residual variance of subject responses.

Keywords

experimental economicsdiscount ratescensored dependent variable

JEL classification

C91: Laboratory, Individual Behavior D90: General‡
Type
Research Article
Information
Experimental Economics , Volume 2 , Issue 2 , December 1999 , pp. 107 - 127
Copyright
Copyright © 1999 Economic Science Association

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