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Intertemporal tradeoffs priced in interest rates and amounts: a study of method variance

Read, Daniel, Airoldi, Mara and Loewe, G (2005) Intertemporal tradeoffs priced in interest rates and amounts: a study of method variance. Operational Research working papers, LSEOR 05.77. Department of Operational Research, London School of Economics and Political Science, London, UK. ISBN 0753016990

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Abstract

In intertemporal choice experiments people usually choose between smaller-sooner and larger-later amounts of money. That is, they make tradeoffs in terms of nominal amounts. Yet the factor governing intertemporal tradeoffs in the marketplace is usually the interest rate. In this study, we tested whether two major phenomena that occur when trading off nominal amounts, excessive discounting and the hyperbolic-interval effect, would also occur when trade-offs are made in terms of interest rates. They don’t. In a large-scale (N=1,960) internet study of Spanish consumers who made intertemporal tradeoffs for money, tradeoffs described in terms of nominal amounts induced high discount rates and a considerable hyperbolic-interval effect (replicating earlier studies). However, when they were described as both amounts and interest rates, discount rates were much lower, and there was no effect for how finely the interval was partitioned. When the tradeoffs were described as interest rates only, discount rates were even lower, and the hyperbolic-interval effect was reversed. Thus, some of the most-cited results in intertemporal choice research are unique to a specific way of eliciting discount rates.

Item Type: Monograph (Working Paper)
Official URL: http://www.lse.ac.uk/collections/operationalResear...
Additional Information: © 2005 London School of Economics and Political Science
Library of Congress subject classification: H Social Sciences > HG Finance
H Social Sciences > H Social Sciences (General)
Sets: Research centres and groups > Management Science Group
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: LSEOR 05.77
Date Deposited: 24 Jul 2008 08:52
URL: http://eprints.lse.ac.uk/19823/

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