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


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.
Original languageEnglish
Issue number320
Pages (from-to)670-697
Number of pages28
Publication statusPublished - Oct 2013

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