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Risk tolerance in the present and the future: an experimental study

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  • Charles Noussair

    (Department of Economics, Emory University, 1602 Fishburne Dr., Atlanta, GA 30322-2240, USA)

  • Ping Wu

    (Information and Decision Sciences, Carlson School of Management, University of Minnesota, 321, 19th Avenue S., Minneapolis, M N 55455, USA)

Abstract

We design an experiment to study the consistency of risk preferences between lotteries that are resolved and paid in the present versus in the future. The results show that a substantial fraction of subjects (38.6%) exhibits a greater level of risk aversion for lotteries resolved and paid in the present than in the future. Additional treatments suggest that the effect is neither specific to gambles that are realized immediately, nor is due to steep discounting of future payoffs. Our experiment suggests that risk tolerance increases the farther in the future the gamble is realized. Copyright © 2006 John Wiley & Sons, Ltd.

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File URL: http://hdl.handle.net/10.1002/mde.1278
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Bibliographic Info

Article provided by John Wiley & Sons, Ltd. in its journal Managerial and Decision Economics.

Volume (Year): 27 (2006)
Issue (Month): 6 ()
Pages: 401-412

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Handle: RePEc:wly:mgtdec:v:27:y:2006:i:6:p:401-412

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Web page: http://www3.interscience.wiley.com/cgi-bin/jhome/7976

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  1. Glenn W. Harrison & Morten I. Lau & Melonie B. Williams, 2002. "Estimating Individual Discount Rates in Denmark: A Field Experiment," American Economic Review, American Economic Association, vol. 92(5), pages 1606-1617, December.
  2. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  3. Smith, Vernon L & Walker, James M, 1993. "Rewards, Experience and Decision Costs in First Price Auctions," Economic Inquiry, Western Economic Association International, vol. 31(2), pages 237-45, April.
  4. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
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