Concave utility, transaction costs, and risk in measuring discounting of delayed rewards.
- 1 January 2003
- journal article
- Published by American Psychological Association (APA) in Journal of Experimental Psychology: Learning, Memory, and Cognition
- Vol. 29 (1) , 66-78
- https://doi.org/10.1037//0278-7393.29.1.66
Abstract
Research has consistently found that the decline in the present values of delayed rewards as delay increases is better fit by hyperbolic than by exponential delay-discounting functions. However, concave utility, transaction costs, and risk each could produce hyperbolic-looking data, even when the underlying discounting function is exponential. In Experiments 1 (N = 45) and 2 (N = 103), participants placed bids indicating their present values of real future monetary rewards in computer-based 2nd-price auctions. Both experiments suggest that utility is not sufficiently concave to account for the superior fit of hyperbolic functions. Experiment 2 provided no evidence that the effects of transaction costs and risk are large enough to account for the superior fit of hyperbolic functions.Keywords
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