The personal discount rate: Evidence from military downsizing programs

The military drawdown program of the early 1990's provides an opportunity t o obtain estimates of personal discount rates based on large numbers of peo ple making real choices involving large sums. The program offered older 65, separatees the choice between an annuity and a lump-sum payment. Despite br eak-even discount rates exceeding 17 percent, most of the separatees select ed the lump sum-saving taxpayers $1.7 billion in separation costs. Estimate s of discount rates range from 0 to over 30 percent and vary with education , age, race. sex, number of dependents, ability test score, and the size of payment.