An experimental investigation of direct subjective discount rates

Uri Benzion, Alon Granot and Joseph Yagil

Applied Economics Letters, 1996, vol. 3, issue 1, 59-61

Abstract: Employing implicit discount rates (derived from subjects' cash-flow responses) previous experimental studies find that the order of magnitude of the implicit rates is higher than actual capital-market rates, and that the impact of time (t) and (S) of the cash-flow on discount rates (R) is negative. To circumvent the problem of possible misvaluation of the exponential function documented in the literature, this experimental study uses direct rather than implicit rates. The results demonstrate that the effect of t and S on R is positive. It is therefore suggested that in addition to implicit discount rates, direct rates too should be used in future research.

Date: 1996
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DOI: 10.1080/758525519

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