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Discounting Behaviour and the Magnitude Effect: Evidence from a Field Experiment in Denmark

Andersen, S.; Harrison, G.W.; Lau, M.I.; Rutström, E.E.

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Authors

S. Andersen

G.W. Harrison

E.E. Rutström



Abstract

We evaluate the claim that individuals exhibit a magnitude effect in their discounting behaviour, where higher discount rates are inferred from choices made with lower principals, all else being equal. If the magnitude effect is quantitatively significant, it is not appropriate to use one discount rate that is independent of the scale of the project for cost–benefit analysis and capital budgeting. Using data from a field experiment in Denmark, we find statistically significant evidence of a magnitude effect that is much smaller than is claimed. This evidence surfaces only if one controls for unobserved individual heterogeneity in the population.

Citation

Andersen, S., Harrison, G., Lau, M., & Rutström, E. (2013). Discounting Behaviour and the Magnitude Effect: Evidence from a Field Experiment in Denmark. Economica, 80(320), 670-697. https://doi.org/10.1111/ecca.12028

Journal Article Type Article
Publication Date Oct 1, 2013
Deposit Date Jun 4, 2014
Publicly Available Date Mar 28, 2024
Journal Economica
Print ISSN 0013-0427
Electronic ISSN 1468-0335
Publisher Wiley
Peer Reviewed Peer Reviewed
Volume 80
Issue 320
Pages 670-697
DOI https://doi.org/10.1111/ecca.12028
Public URL https://durham-repository.worktribe.com/output/1428963

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Copyright Statement
This is the accepted version of the following article: Andersen, S., Harrison, G. W., Lau, M. I. and Rutström, E. E. (2013), Discounting Behaviour and the Magnitude Effect: Evidence from a Field Experiment in Denmark. Economica, 80 (320): 670–697, which has been published in final form at http://dx.doi.org/10.1111/ecca.12028. This article may be used for non-commercial purposes in accordance With Wiley Terms and Conditions for self-archiving.





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