Avoiding the Curves: Direct Elicitation of Time Preferences

37 Pages Posted: 3 Feb 2011

See all articles by Susan Laury

Susan Laury

Georgia State University - Andrew Young School of Policy Studies

Melayne Morgan McInnes

University of South Carolina - Darla Moore School of Business

J. Todd Swarthout

Georgia State University - Andrew Young School of Policy Studies

Erica Von Nessen

University of South Carolina - Moore School of Business - Department of Economics

Date Written: January 18, 2011

Abstract

We propose and test a new method for eliciting curvature-controlled discount rates that are invariant to the form of the utility function. The advantage of this method is that individual discount rates can be obtained without knowledge of risk attitude or parametric assumptions about the form of the utility function. We compare our single elicitation method that does not require estimation of the utility function to the Andersen et al. (2008) double elicitation technique in which the utility function and discount rates are jointly estimated. We use a laboratory experiment to perform a within-subjects comparison of discount rates from these two methods and consistent results, which is reassuring given the wide range of estimates in the literature. In addition, the estimated discount rates in our study are plausibly low in contrast to the vast majority of other discount rate studies. Average discount rates are estimated to be between 12.2 and 14.1 percent. Our results are robust to relaxing the expected utility assumption of linearity in the probabilities, as we find little evidence of probability weighting in our data.

Keywords: discounting, time preference, risk, experiments

Suggested Citation

Laury, Susan and McInnes, Melayne Morgan and Swarthout, J. Todd and Nessen, Erica Von, Avoiding the Curves: Direct Elicitation of Time Preferences (January 18, 2011). Andrew Young School of Policy Studies Research Paper Series No. 11-07, Available at SSRN: https://ssrn.com/abstract=1754082 or http://dx.doi.org/10.2139/ssrn.1754082

Susan Laury

Georgia State University - Andrew Young School of Policy Studies ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

Melayne Morgan McInnes

University of South Carolina - Darla Moore School of Business ( email )

1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States

J. Todd Swarthout (Contact Author)

Georgia State University - Andrew Young School of Policy Studies ( email )

P.O. Box 3992
Atlanta, GA 30302-3992
United States

Erica Von Nessen

University of South Carolina - Moore School of Business - Department of Economics ( email )

The Francis M. Hipp Building
1705 College Street
Columbia, SC 29208
United States

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