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Discounting behavior and the magnitude effect.

Andersen, Steffen and Harrison, Glenn and Lau, Morten and Rutstroem, Elisabet (2011) 'Discounting behavior and the magnitude effect.', Working Paper. Durham University, Durham.


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 lowerprincipals, all else being equal. If the effect is robust, as claimed, we should be able to see it usingprocedures that are more familiar to economists. Using data collected from a representative sampleof 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 forunobserved individual heterogeneity in the population. And it disappears completely if we includediscounting choices in which both options have some time delay.

Item Type:Monograph (Working Paper)
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Status:Not peer-reviewed
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Record Created:07 Dec 2012 10:37
Last Modified:16 Oct 2013 13:28

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