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Source of income effect on individual risk- and time-preferences : experimental approach

Does the way people earn money affect their economic decisions? The main contribution of this thesis is to provide new evidence that the way people earn money affects their decision-making. Standard economic theory generally assumes that money is fungible – that is, each unit of money is a perfect substitute for another. Fungibility thus predicts that source of income should have no influence on individual decision-making. On the other hand, Prospect theory determines the value of same prospect as gain or loss relative to the reference point. Prospect theory predicts a significant source of income on individual decision-making if source of income shifts the reference point. This thesis has focused on investigating whether source of income affects (a) individual risk-preference, which governs individual decision-making under risk; and (b) individual time-preference, which governs individual intertemporal decision-making. From a series of real-effort laboratory experiments, I find that subjects are more risk-averse and more patient concerning hard-earned money than with easily earned money consistent with Prospect theory and loss aversion.

Identiferoai:union.ndltd.org:bl.uk/oai:ethos.bl.uk:648914
Date January 2015
CreatorsLee, Jae Ho
PublisherUniversity of Aberdeen
Source SetsEthos UK
Detected LanguageEnglish
TypeElectronic Thesis or Dissertation
Sourcehttp://digitool.abdn.ac.uk:80/webclient/DeliveryManager?pid=225793

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