On Thursday 13 December, Ulrich Schmidt, Professor of Public Economics, Social Policy & Health Economic and Research Fellow at the Kiel Institute for the World Economy, University of Kiel, is the final speaker in this semester’s SWE colloquium series.
Differential discounting and the equity premium puzzle
The speaker proposes a novel behavioral explanation for the equity premium puzzle which is based on the assumption that individuals discount future losses less than future gains, reporting a paper providing experimental evidence for our hypothesis: First, we show that the discount rate for losses is smaller than for gains. Second, we show that mixed lotteries become less attractive over time and this effect is not driven via changes in risk attitudes. Given our first finding, differential discounting is a plausible explanation and therefore might be the source of an additional premium on stocks beyond the level of investor risk aversion.
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