S. Andersen
Discounting Behaviour and the Magnitude Effect: Evidence from a Field Experiment in Denmark
Andersen, S.; Harrison, G.W.; Lau, M.I.; Rutström, E.E.
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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