Quotation Walther, Herbert. 2008. S-shaped probability weighting and hyperbolic discounting. Workshop on Rationality & Emotions. Jointly organised by CEPERC, University of Provence, France, Cambridge, Großbritannien, 09.01.-10.01.


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Abstract

Intertemporal decision making has to take into account the unavoidable uncertainty surrounding the realization of gains and losses in the future. An intertemporal state-dependent expected utility model, deducing probability weighting by incorporating anticipated emotional reactions towards resolution of uncertainty, is sufficient to explain hyperbolic discounting. A .sign-effect. (losses are discounted less than gains), Loewenstein.s delay-speed up asymmetry and a magnitude effect for losses (larger outcomes are discounted less) appear under fairly general conditions. A ‘perverse’ .magnitude effect develops, however, for gains (larger outcomes are discounted more). Within the domain of small gains a .magnitude effect can be rationalized by incorporating anticipated transaction costs. As a corollary, a subject will discount gains at higher and losses at lower rates, if it is poor.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title S-shaped probability weighting and hyperbolic discounting
Event Workshop on Rationality & Emotions. Jointly organised by CEPERC, University of Provence, France
Year 2008
Date 09.01.-10.01
Country United Kingdom
Location Cambridge

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People
Walther, Herbert (Details)
Organization
Department of Economics (Kartal) (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5300 Economics (Details)
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