Time for Tea: Measuring Discounting for Money and Consumption without the Utility Confound

Mohammed Abdellaoui, Emmanuel Kemel, Amma Panin () and Ferdinand M. Vieider
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Amma Panin: Université catholique de Louvain, LIDAM/CORE, Belgium

No 2023007, LIDAM Discussion Papers CORE from Université catholique de Louvain, Center for Operations Research and Econometrics (CORE)

Abstract: We present a novel method—called risk equivalents—that uses a single measure to elicit discount rates while avoiding concerns about the shape of the utility function. The method is valid under discounted expected utility (DEU), and also under several of its behavioral extensions including more general models that account for a biased perception of time and risk (such as time- or likelihood-insensitivity). We implement the method in a field experiment in India measuring inter-temporal discount rates for money and the consumption of tea.We empirically observe that discount rates elicited by traditional methods are related to utility curvature, whereas discount rates elicited by risk equivalents are not. Risk equivalents also mitigate differences in discount rates measured for money and for tea, suggesting that unaddressed utility curvature may play a role in results that demonstrate good-specific discounting. Risk equivalents are general, fast and tractable, three features that are particularly useful in field studies.

Keywords: Time discounting; money vs consumption; utility confound (search for similar items in EconPapers)
JEL-codes: D03 D81 D91 (search for similar items in EconPapers)
Pages: 21
Date: 2023-02-10
New Economics Papers: this item is included in nep-exp and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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