We thank Leonardo Felli, Kirsten I.M. Rohde, Peter P. Wakker and three anonymous referees for their helpful comments and suggestions. Arthur Attema's and Han Bleichrodt's research was made possible through grants from the Netherlands Organisation for Scientific Research (NWO).
Intertemporal Tradeoffs for Gains and Losses: An Experimental Measurement of Discounted Utility*
Article first published online: 25 AUG 2009
© The Author(s). Journal compilation © Royal Economic Society 2009
The Economic Journal
Volume 120, Issue 545, pages 845–866, June 2010
How to Cite
Abdellaoui, M., Attema, A. E. and Bleichrodt, H. (2010), Intertemporal Tradeoffs for Gains and Losses: An Experimental Measurement of Discounted Utility. The Economic Journal, 120: 845–866. doi: 10.1111/j.1468-0297.2009.02308.x
- Issue published online: 1 JUN 2010
- Article first published online: 25 AUG 2009
- Submitted: 8 August 2007 Accepted: 3 February 2009
This article provides a parameter-free measurement of utility in intertemporal choice and presents new and more robust evidence on the discounting of money outcomes. Intertemporal utility was concave for gains and convex for losses, consistent with a hypothesis put forward by Loewenstein and Prelec (1992). Discount rates declined over time but less so than previously observed under the assumption of linear utility. For approximately 40% of our subjects constant discounting provided the best fit. The remaining 60% were most consistent with Harvey's (1986) power discounting. Our data provide little support for the popular quasi-hyperbolic model, which is widely used in economics today. We observed an asymmetry in the discounting of gains and losses that, unlike earlier findings, cannot be explained by a framing effect.