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The purpose of this paper is to portray the valuation of financial investments as mental time travel.
Abstract
Purpose
The purpose of this paper is to portray the valuation of financial investments as mental time travel.
Design/methodology/approach
In a series of thought investments, $1 invested in an investment fund is mentally projected forward in time and then discounted back to the present – with no objective time passing. The thought investments feature symmetric valuation (in which discount rates exactly match projection rates) and asymmetric valuation (in which discount rates and projection rates happen to differ). They show how asymmetric valuation can result in differences between the current personal value and market value of an investment and, by way of real-world illustration, between a closed-end investment fund's net asset value and its market value. The authors explore possible reasons for asymmetric valuation.
Findings
Thought investments illustrating mental time travel can be used to help understand both financial investment valuation generally and, more specifically, established explanations of the closed-end investment fund puzzle. The authors show how different expectations, different perceptions of time and risk and different risk and time preferences might help determine value.
Originality/value
There are vast literatures on prospection, discounting and future-orientated or intertemporal decision-making. The authors’ innovation is to illustrate how these mental activities might combine to facilitate financial investment valuation. In particular, the authors show that a low personal discount rate could be a consequence of a shortened perception of future time and vice versa.
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W. David Bradford and James F. Burgess
One of the fundamental tasks in optimal insurance design is mitigating the moral hazard effects inherent in insurance mechanisms. Empirically, relatively little is known about how…
Abstract
One of the fundamental tasks in optimal insurance design is mitigating the moral hazard effects inherent in insurance mechanisms. Empirically, relatively little is known about how individual-level time preferences affect selection of insurance options. We use several waves of the Health and Retirement Survey to explore the relationship between revealed time preferences at the individual level and the selection of insurance options for both the under-age-65 population and the Medicare-eligible population. Our results suggest that time preferences are not likely to be fixed across the life cycle, and that they appear to be important predictors of health insurance decisions.
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Takanori Ida and Kazuhito Ogawa
This paper aims to conduct a hypothetical dictator game with social distance and time delays using conjoint analysis.
Abstract
Purpose
This paper aims to conduct a hypothetical dictator game with social distance and time delays using conjoint analysis.
Design/methodology/approach
Responses from 1,347 Japanese adults are collected through an online survey, and their responses are analyzed using a random parameter logit model.
Findings
The paper finds that social preference for the present income of a stranger equals social preference for the income of an acquaintance 140 days later, of a close friend 224 days later, and of a family member 255 days later.
Originality/value
The paper simultaneously estimates social preference parameters, including the inequality aversion rate, the social discount rate, and the time discount rate.
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Subhash Jha, Sujay Dutta and Ahmet Koksal
This study aims to examine whether adding a quantity scarcity message to a monetary discount helps to improve consumers’ offer-related perceptions and intentions, and how the…
Abstract
Purpose
This study aims to examine whether adding a quantity scarcity message to a monetary discount helps to improve consumers’ offer-related perceptions and intentions, and how the effectiveness of that message compares with adding time restriction to the offer.
Design/methodology/approach
Two experiments, where participants evaluated retail ads and responded to relevant measures, were conducted in two country markets.
Findings
Adding either a quantity scarcity message or time restriction to a monetary discount increases the potency of a retail offer. Further, when an offer ad emphasizes product and price-related cues in a balanced manner, time restriction results in more favorable consumer perceptions than scarcity. However, this difference in the messages’ efficacy disappears when the offer strongly emphasizes price-related cues.
Research limitations/implications
The US market sample is more homogeneous than the Indian one. Discounts were presented in terms of advertised reference prices; further research with other discount formats is desirable.
Practical implications
Understanding the relative efficacy of quantity scarcity message and time restriction in discounted retail offers can give managers flexibility in the use of these tools.
Originality/value
This paper addresses scholars’ call for theory-grounded research that provides guidance to retailers on the use of sales promotional tools.
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T.V. Grissom, M. McCord, D. McIlhatton and M. Haran
The purpose of this paper, which is the first of a two-part series, is to build upon the established research on environmental economics and sustainability theory developed by…
Abstract
Purpose
The purpose of this paper, which is the first of a two-part series, is to build upon the established research on environmental economics and sustainability theory developed by Ramsey (1928), Weitzman (2007) and Gollier (2010). The Ramsey-Weitzman-Gollier model, with the contribution of Howarth (2009) and Nordhaus (2007a, b), focuses on discount rate development for environmental and long-term assets, linking discounted utility analysis embedded in the CCAPM model of Lucas (1978) to the policy concerns associated with the valuation of public and sustainable resources. This paper further investigates these issues to the rates structure appropriate for exhaustible resources with a particular emphasis on urban land, based upon the differentiation of strong and weak form sustainability concepts constrained by the objectives of the sustainable criterion of Daly and Cobb (1994).
Design/methodology/approach
The paper integrates the concepts of discount rate development for environmental and long-term assets and discounted utility analysis to the policy concerns associated with the valuation of public and sustainable resources. It develops new theoretical insight in order to allow the theoretical formulation of discount and capitalization rates that can be empirically applied and tested.
Findings
The paper provides theoretical support for a new approach concerned with the development of capitalization and discount rates in the valuation of non-renewable resources. A key concern of valuing non-renewable or limited resource endowments (in space or time) is the problem of irreversible investment or irrevocable decision implementation as suggested by Arrow-Fisher (1974), Krautkraemer (1985) and Daly and Cobb (1994). It investigates the challenge with developing capitalization rates and valuation of depleting resources temporally, within the constraints of sustainability. To achieve this, an optimal control discounting procedure subject to a sustainable objective statement is employed – in this context it suggests that sustainability should be treated as an alternative to traditional growth and the maximization of near-term returns.
Originality/value
This paper extends the construct of developing rates structures appropriate for the valuation of exhaustible resources. It places a conceptual emphasis on urban land development. The measures developed and the insights gained may serve as a basis for future research on the optimal levels of sustainable development appropriate for different nations.
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Tatiana Kossova and Maria Sheluntcova
This article aims to investigate the role of socioeconomic factors and individual time preferences in the demand for fast-food in Russia. An individual discount rate shows the…
Abstract
Purpose
This article aims to investigate the role of socioeconomic factors and individual time preferences in the demand for fast-food in Russia. An individual discount rate shows the ability of a person to postpone utility from consumption to future periods.
Design/methodology/approach
An individual discount rate is measured through a hypothetical money experiment. The database is the special survey of the Levada analytical center conducted in 2017. Multivariate probit model enables the authors to consider the possible endogeneity of individual discount rate and reveal the relationship between socioeconomic factors and frequent fast-food consumption.
Findings
Results show that a higher individual discount rate is related to frequent consumption of fast-food. At the same time, there are factors that provoke both a higher individual discount rate and the refusal of frequent consumption of fast-food. Findings advise the prioritization of measures highlighting the short-term benefits of healthy eating and the short-term costs of avoiding it.
Originality/value
To the authors' knowledge, this article is the first one which presents comprehensive investigation of microeconomic factors of fast-food consumption in Russia including individual time preferences of consumers.
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Yang Liu, Charlene Xie and Shengxiang She
The purpose of this research is to explore the effect of time delay on the perception of environmental risks beyond time discounting, and thus provide a reference for effective…
Abstract
Purpose
The purpose of this research is to explore the effect of time delay on the perception of environmental risks beyond time discounting, and thus provide a reference for effective communication related to environment and environmental risks.
Design/methodology/approach
Ten risk scenarios across four time delay conditions were designed. Computer program randomly presented different risk scenarios to student subjects. Risk perception was measured through equivalent certain loss elicited by bi-section method. In all, 50 students from Harbin Institute of Technology Shenzhen Graduate School participated in the experiment.
Findings
Time delay makes the subjects optimistic toward environmental risk with the exclusion of time discounting. The more distant in time the occurrence of an environmental risk, the less in intensity subjects will perceive it as a severe threat. Also, there is a noticeable difference in environmental risk perception between males and females.
Research limitations/implications
This tentative research focusses on exploring the existence of time delay effect on environmental risk perception. Only student subjects are recruited for this research. Future studies are needed to extend the population to people of different backgrounds in order to generalize the finding.
Practical implications
Current ethical appeal of zero social discount rate is unlikely to be effective. Time delay effect in people's environmental risk perception should be acknowledged. Such an acknowledgement is the basis of trust in risk communication. Communication effort needs to address this time delay effect to make people alert to long-term environmental risks, and eventually change their environmental behaviors.
Originality/value
The explorative research represents the first attempt to investigate the effect of time delay on environmental risk perception when time discounting is excluded. It suggests a new direction to understand public optimism toward delayed environmental risks, and reluctance to take proactive actions, and thus offers a new insight into related communication efforts.
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A study of the price discounts granted by Morton Salt Company and other producers of table salt in the U.S. on their sales of table salt to grocery wholesalers and retailers. The…
Abstract
A study of the price discounts granted by Morton Salt Company and other producers of table salt in the U.S. on their sales of table salt to grocery wholesalers and retailers. The discounts were found to be illegal under the Robinson-Patman Act by the Federal Trade Commission and the Supreme Court. The Commission and the Court believed that the discounts were unjustified price concessions granted to “large” buyers, consistent with the concerns of the Robinson-Patman Act. However, the evidence indicates that the most common discount – the “carload discount” – was received by virtually all buyers, regardless of the buyer’s size; the other discounts – “annual volume” discounts – though received primarily by “large” buyers, were likely cost based. The history of the discounts and likely reasons why they were granted are explored in detail.
Isabel González Fernández and Salvador Cruz Rambaud
The purpose of this paper is to introduce the main measures of inconsistency in the context of intertemporal choice and to identify the relationships between them (more…
Abstract
Purpose
The purpose of this paper is to introduce the main measures of inconsistency in the context of intertemporal choice and to identify the relationships between them (more specifically, the measures by Prelec, Takahashi and Rohde). In effect, Thaler (1981), awarded the Nobel Prize in Economics 2017, argued that when a preference must be expressed between two reward options, some people may reverse their original preference when a significant delay is introduced before the reward is to be received. This anomaly is known as inconsistency in intertemporal choice.
Design/methodology/approach
After a revision of the existing literature and by using the methods from mathematical calculus, the authors have derived the logical relationships between the measures presented in this paper.
Findings
The main contribution of this paper is the proposal of a novel parameter, the so-defined ratio of two instantaneous discount rates, which the authors call the instantaneous variation rate, which allows relating some other measures of inconsistency, namely the measures described by Prelec and Rohde. A limitation of this paper is the unavailability of empirical information about the inconsistency measures needed to substantiate the theoretical findings. Indeed, this paper has social implications because recent behavioral and neuroeconomic studies have shown the existence of preference reversal or time inconsistency in other areas. The authors’ models can be implemented in these fields in order to better analyze the situations of inconsistency.
Originality/value
The originality of this paper lies in the authors’ aim to bring some order to the proposed measures of inconsistency which have arisen as a result of the different approaches adopted.
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