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Intertemporal choice under timing risk: An experimental approach

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  • Selçuk Onay
  • Ayse Öncüler

Abstract

This paper investigates how individuals evaluate delayed outcomes with risky realization times. Under the discounted expected utility (DEU) model, such evaluations depend only on intertemporal preferences. We obtain several testable hypotheses using the DEU model as a benchmark and test these hypotheses in three experiments. In general, our results show that the DEU model is a poor predictor of intertemporal choice behavior under timing risk. We found that individuals are averse to timing risk and that they evaluate timing lotteries in a rank-dependent fashion. The main driver of timing risk aversion is nothing but probabilistic risk aversion that stems from the nonlinear treatment of probabilities. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • Selçuk Onay & Ayse Öncüler, 2007. "Intertemporal choice under timing risk: An experimental approach," Journal of Risk and Uncertainty, Springer, vol. 34(2), pages 99-121, April.
  • Handle: RePEc:kap:jrisku:v:34:y:2007:i:2:p:99-121
    DOI: 10.1007/s11166-007-9005-x
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    Cited by:

    1. Salvador Cruz Rambaud & Ana María Sánchez Pérez, 2020. "Discounted and Expected Utility from the Probability and Time Trade-Off Model," Mathematics, MDPI, vol. 8(4), pages 1-17, April.
    2. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2020. "Time Lotteries and Stochastic Impatience," Econometrica, Econometric Society, vol. 88(2), pages 619-656, March.
    3. Galizzi, Matteo M. & Miraldo, Marisa & Stavropoulou, Charitini & van der Pol, Marjon, 2016. "Doctor–patient differences in risk and time preferences: A field experiment," Journal of Health Economics, Elsevier, vol. 50(C), pages 171-182.
    4. Gerber, Anke & Rohde, Kirsten I.M., 2010. "Risk and preference reversals in intertemporal choice," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 654-668, December.
    5. Keith Coble & Jayson Lusk, 2010. "At the nexus of risk and time preferences: An experimental investigation," Journal of Risk and Uncertainty, Springer, vol. 41(1), pages 67-79, August.
    6. Alexis Direr, 2020. "Portfolio choice with time horizon risk," Working Papers hal-02879759, HAL.
    7. Thomas Epper & Helga Fehr-Duda & Adrian Bruhin, 2011. "Viewing the future through a warped lens: Why uncertainty generates hyperbolic discounting," Journal of Risk and Uncertainty, Springer, vol. 43(3), pages 169-203, December.
    8. Hermann, Daniel & Mußhoff, Oliver & Rüther, Dörte, 2015. "Measuring farmers’ time preference – A comparison of methods," Department of Agricultural and Rural Development (DARE) Discussion Papers 260784, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    9. Breuer, Wolfgang & Soypak, K. Can, 2015. "Framing effects in intertemporal choice tasks and financial implications," Journal of Economic Psychology, Elsevier, vol. 51(C), pages 152-167.
    10. Mohammed Abdellaoui & Emmanuel Kemel, 2014. "Eliciting Prospect Theory When Consequences Are Measured in Time Units: “Time Is Not Money”," Management Science, INFORMS, vol. 60(7), pages 1844-1859, July.
    11. Pavlo Blavatskyy, 2020. "Expected discounted utility," Theory and Decision, Springer, vol. 88(2), pages 297-313, March.
    12. Mark Schneider, 2018. "A Dual System Model of Risk and Time Preferences," Working Papers 18-18, Chapman University, Economic Science Institute.
    13. Bleichrodt, Han & Rohde, Kirsten I.M. & Wakker, Peter P., 2009. "Non-hyperbolic time inconsistency," Games and Economic Behavior, Elsevier, vol. 66(1), pages 27-38, May.
    14. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2015. "Time Lotteries," PIER Working Paper Archive 15-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 31 Jul 2015.
    15. Minghao Pan, 2022. "Risk and Intertemporal Preferences over Time Lotteries," Papers 2209.01790, arXiv.org.
    16. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2014. "Time Lotteries, Second Version," PIER Working Paper Archive 15-026v2, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 12 Jan 2018.
    17. Craig S. Webb, 2019. "Trichotomic discounted utility," Theory and Decision, Springer, vol. 87(3), pages 321-339, October.
    18. Rohde, Kirsten I.M., 2009. "Decreasing relative impatience," Journal of Economic Psychology, Elsevier, vol. 30(6), pages 831-839, December.
    19. Mark Schneider, 2016. "Dual Process Utility Theory: A Model of Decisions Under Risk and Over Time," Working Papers 16-23, Chapman University, Economic Science Institute.
    20. Kirsten Rohde, 2010. "The hyperbolic factor: A measure of time inconsistency," Journal of Risk and Uncertainty, Springer, vol. 41(2), pages 125-140, October.
    21. Sebastian Ebert, 2021. "Prudent Discounting: Experimental Evidence On Higher Order Time Risk Preferences," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1489-1511, November.
    22. Anke Gerbe & Kirsten I.M. Rohde, 2010. "Risk and Preference Reversals in Intertemporal Choice," Post-Print hal-00911832, HAL.
    23. Pavlo R. Blavatskyy & Hela Maafi, 2020. "A new test of convexity–concavity of discount function," Theory and Decision, Springer, vol. 89(2), pages 121-136, September.

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    More about this item

    Keywords

    Intertemporal choice; Timing risk; Non-expected utility; C91; D81; D91;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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