Homework 2 How good is the Exponential Function Discounting Formula? An Experimental Study.

Homework 2 How good is the Exponential Function Discounting Formula? An Experimental Study. We studies in financial economics and behavioral finance always attempt to explain various anomalies documented in the empirical literature. Recently, Loewenstein and O'Donoghue extensive review study of time discounting, they conclude the discount utility model have little empirical support. One of the anomalies, they note, is the declining-discount-rates result established in the economic psychology literature, and often referred to as hyperbolic time discounting. …

…functions as linear, quadratic and cubic functions, conform to the discounting and compounding process of individual decision makers; and (3) to investigate the impact of personal characteristics. Finally, regression results demonstrate no statistically significant correlation between the exponential function (EF) subjective misevaluation coefficient and such personal characteristics, as sex, age, having a savings account and investing in capital market securities. This result implies that the EF misevaluation is robust; personal differences are of no significant consequence.