In an experiment we assess the impact of three confounding factors in the estimation of discount rates. First, the ability of a person to fully understand the terms of the problem and the future consequences of her choices. Second, the possible presence of credit constraints. Third, uncertainty about future events. The experiment is not hypothetical but involves cash payments; moreover, the various options offered are paid with an actual time delay. Two novel aspects of this study is the way we control for individual differences in skill levels and the simultaneous collection of risk perception, risk attitude, and discount rate data for the same subject. The strongest empirical impact that we find for our undergraduate student sample is for credit constraints. Subjects with self-reported difficulties to access the credit market exhibit significantly shorter waiting time for the larger reward. The perceived implicit risk in waiting for the later reward seems to matter for the actual choices. The magnitude of the self-reported perceived risk is considerable and makes it a factor that cannot be ignored in future empirical analysis. Although the regression analysis fails to detect a significant impact, other statistics suggest that the reason may because of the way in which risk perceptions were elicited. Finally, subjects show differentiated ability to compute exponential discounting but these differences seem to be not significantly correlated with the discount rate.

Unpacking Experimental Discount Rates: Impatience, Uncertainty, and Credit Constraints

CASARI, MARCO
2008

Abstract

In an experiment we assess the impact of three confounding factors in the estimation of discount rates. First, the ability of a person to fully understand the terms of the problem and the future consequences of her choices. Second, the possible presence of credit constraints. Third, uncertainty about future events. The experiment is not hypothetical but involves cash payments; moreover, the various options offered are paid with an actual time delay. Two novel aspects of this study is the way we control for individual differences in skill levels and the simultaneous collection of risk perception, risk attitude, and discount rate data for the same subject. The strongest empirical impact that we find for our undergraduate student sample is for credit constraints. Subjects with self-reported difficulties to access the credit market exhibit significantly shorter waiting time for the larger reward. The perceived implicit risk in waiting for the later reward seems to matter for the actual choices. The magnitude of the self-reported perceived risk is considerable and makes it a factor that cannot be ignored in future empirical analysis. Although the regression analysis fails to detect a significant impact, other statistics suggest that the reason may because of the way in which risk perceptions were elicited. Finally, subjects show differentiated ability to compute exponential discounting but these differences seem to be not significantly correlated with the discount rate.
Games, Rationality and Behaviour: Essays on Behavioural Game Theory and Experiments
11
25
Casari M.
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11585/52475
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