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

Steffen Andersen, Glenn W. Harrison, Morten Igel Lau, E. Elisabet Rutström

Research output: Contribution to journalJournal articleResearchpeer-review

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.
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.
LanguageEnglish
JournalEconomica
Volume80
Issue number320
Pages670-697
Number of pages28
ISSN0013-0427
DOIs
StatePublished - Oct 2013

Cite this

Andersen, Steffen ; Harrison, Glenn W. ; Lau, Morten Igel ; Rutström, E. Elisabet. / Discounting Behaviour and the Magnitude Effect : Evidence from a Field Experiment in Denmark. In: Economica. 2013 ; Vol. 80, No. 320. pp. 670-697
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Discounting Behaviour and the Magnitude Effect : Evidence from a Field Experiment in Denmark. / Andersen, Steffen; Harrison, Glenn W.; Lau, Morten Igel; Rutström, E. Elisabet.

In: Economica, Vol. 80, No. 320, 10.2013, p. 670-697.

Research output: Contribution to journalJournal articleResearchpeer-review

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T1 - Discounting Behaviour and the Magnitude Effect

T2 - Economica

AU - Andersen,Steffen

AU - Harrison,Glenn W.

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AU - Rutström,E. Elisabet

PY - 2013/10

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N2 - 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.

AB - 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.

U2 - 10.1111/ecca.12028

DO - 10.1111/ecca.12028

M3 - Journal article

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EP - 697

JO - Economica

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SN - 0013-0427

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