Discounting Behavior and the Magnitude Effect

Steffen Andersen, Glenn Harrison, Morten Lau and Elisabet Rutstroem ()
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Elisabet Rutstroem: Robinson College of Business, Georgia State University
Authors registered in the RePEc Author Service: Elisabet Rutstrom

No 2011_02, Department of Economics Working Papers from Durham University, Department of Economics

Abstract: We evaluate the claim that individuals exhibit a magnitude effect in their discounting behavior, which is said to occur when higher discount rates are inferred from choices made with lower principals, all else being equal. If the effect is robust, as claimed, we should be able to see it using procedures that are more familiar to economists. Using data collected from a representative sample of adult Danes, we find statistically significant evidence of a small magnitude effect, at levels that are much smaller than is typically claimed. This evidence only surfaces if one carefully controls for unobserved individual heterogeneity in the population. And it disappears completely if we include discounting choices in which both options have some time delay.

Date: 2011-05-01
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Citations: View citations in EconPapers (8)

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