Intertemporal tradeoffs priced in interest rates and amounts: a study of method variance

Daniel Read, Mara Airoldi and G Loewe

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: In intertemporal choice experiments people usually choose between smaller-sooner and larger-later amounts of money. That is, they make tradeoffs in terms of nominal amounts. Yet the factor governing intertemporal tradeoffs in the marketplace is usually the interest rate. In this study, we tested whether two major phenomena that occur when trading off nominal amounts, excessive discounting and the hyperbolic-interval effect, would also occur when trade-offs are made in terms of interest rates. They don’t. In a large-scale (N=1,960) internet study of Spanish consumers who made intertemporal tradeoffs for money, tradeoffs described in terms of nominal amounts induced high discount rates and a considerable hyperbolic-interval effect (replicating earlier studies). However, when they were described as both amounts and interest rates, discount rates were much lower, and there was no effect for how finely the interval was partitioned. When the tradeoffs were described as interest rates only, discount rates were even lower, and the hyperbolic-interval effect was reversed. Thus, some of the most-cited results in intertemporal choice research are unique to a specific way of eliciting discount rates.

JEL-codes: F3 G3 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2005-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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