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J Exp Psychol Learn Mem Cogn. 2003 Jan;29(1):66-79.

Concave utility, transaction costs, and risk in measuring discounting of delayed rewards.

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  • 1Department of Psychology, Williams College, Williamstown, Massachusetts 01267, USA. kkirby@williams.edu

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.

PMID:
12549584
[PubMed - indexed for MEDLINE]
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