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Eliciting Risk and Time Preferences

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Author Info

  • Steffen Andersen
  • Glenn W. Harrison
  • Morten I. Lau
  • E. Elisabet Rutström

Abstract

We design experiments to jointly elicit risk and time preferences for the adult Danish population. Since subjects are generally risk averse, we find that joint elicitation provides estimates of discount rates that are significantly lower than those found in previous studies and more in line with what would be considered as a priori reasonable rates. The statistical specification relies on a theoretical framework that involves a latent trade-off between long-run optimization and short-run temptation. Estimation of this specification is undertaken using structural, maximum likelihood methods. Our main results based on exponential discounting are robust to alternative specifications such as hyperbolic discounting. These results have direct implications for attempts to elicit time preferences, as well as debates over the appropriate domain of the utility function when characterizing risk aversion and time consistency. Copyright Copyright 2008 by The Econometric Society.

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File URL: http://hdl.handle.net/10.1111/j.1468-0262.2008.00848.x
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Bibliographic Info

Article provided by Econometric Society in its journal Econometrica.

Volume (Year): 76 (2008)
Issue (Month): 3 (05)
Pages: 583-618

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Handle: RePEc:ecm:emetrp:v:76:y:2008:i:3:p:583-618

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