Gains and Losses in Intertemporal Preferences: A Behavioural Study

Abstract

According to recent evidence (Frederick, Loewenstein, & O'Donoghue, 2002), the traditional Discounted Utility model (Samuelson, 1937) has a limited ability to describe realistic models of behaviour and indeed there are several documented empirical regularities that seem to contradict this statement both in certainty and uncertainty conditions.This study focused on one of the best documented anomalies: sign effect or gain-loss asymmetry (Frederick et al., 2002;Loewenstein & Prelec, 1992;Read, 2004).Specifically, the study investigated the intertemporal preference for symmetric monetary rewards and punishments in certain conditions, and the no wealth effects hypothesis (Dimitri, 2007) by asking subjects to choose between two positive or two negative euro amounts available at different points in time.The experimental design applied here followed the same behavioural pattern of the neuroeconomics' study on monetary rewards realized by McClure et al. (2004).The results confirmed a gain-loss asymmetry at least for medium and large euro amount and suggested new directions of research.

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