AN EXPERIMENTAL INVESTIGATION OF DIRECT SUBJECTIVE DISCOUNT RATES

Employing implicit discount rates (derived from subjects' cash-flow re sponses) previous experimental studies find that the order of magnitud e of the implicit rates is higher than actual capital-market rates, an d that the impact of time (t) and (S) of the cash-flow on discount rat es (R) is negative. To circumvent the problem of possible misvaluation of the exponential function documented in the literature, this experi mental study uses direct rather than implicit rates. The results demon strate that the effect of t and S on R is positive. It is therefore su ggested that in addition to implicit discount rates, direct rates too should be used in future research.