Risk Preferences Are Not Time Preferences
AbstractRisk and time are intertwined. The present is known while the future is inherently risky. This is problematic when studying time preferences since uncontrolled risk can generate apparently present-biased behavior. We systematically manipulate risk in an intertemporal choice experiment. Discounted expected utility performs well with risk, but when certainty is added common ratio predictions fail sharply. The data cannot be explained by prospect theory, hyperbolic discounting, or preferences for resolution of uncertainty, but seem consistent with a direct preference for certainty. The data suggest strongly a difference between risk and time preferences. (JEL C91 D81 D91)
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Date of creation: 04 Feb 2010
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- 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 - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
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- NEP-ALL-2010-02-20 (All new papers)
- NEP-CBE-2010-02-20 (Cognitive & Behavioural Economics)
- NEP-EXP-2010-02-20 (Experimental Economics)
- NEP-UPT-2010-02-20 (Utility Models & Prospect Theory)
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