Concave utility,transaction costs,and risk in measuring discounting of delayed rewards |
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Authors: | Kirby Kris N Santiesteban Mariana |
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Affiliation: | Department of Psychology, Williams College, Williamstown, Massachusetts 01267, USA. kkirby@williams.edu |
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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. |
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