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Risk and Preference Reversals in Intertemporal Choice

Author

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  • Anke Gerbe

    (Department of Economics - University of Hamburg)

  • Kirsten I.M. Rohde

    (Department of Economics - Department of Economics)

Abstract

This paper argues that observations of non-stationary choice behavior need not necessarily imply speci_c properties of the individual's discount function. As we show, the observed preference reversals in intertemporal choice are consistent with constant discounting and can alternatively be explained by decreasing absolute risk aversion together with the individual's risk perception. This risk may concern the size of the actual outcome or the endowment consumption stream to which the outcome is added. Both types of uncertainty naturally appear in the context of intertemporal choice. We show how relative degrees of changes in risk over time can determine choices.

Suggested Citation

  • Anke Gerbe & Kirsten I.M. Rohde, 2010. "Risk and Preference Reversals in Intertemporal Choice," Post-Print hal-00911832, HAL.
    • Handle: RePEc:hal:journl:hal-00911832
    DOI: 10.1016/j.jebo.2010.09.005
    Note: View the original document on HAL open archive server: https://hal.science/hal-00911832
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    Cited by:

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    2. Han Bleichrodt & Yu Gao & Kirsten I. M. Rohde, 2016. "A measurement of decreasing impatience for health and money," Journal of Risk and Uncertainty, Springer, vol. 52(3), pages 213-231, June.
    3. Abdellaoui, Mohammed & Kemel, Emmanuel & Panin, Amma & Vieider, Ferdinand M., 2019. "Measuring time and risk preferences in an integrated framework," Games and Economic Behavior, Elsevier, vol. 115(C), pages 459-469.
    4. Emmanuel Kemel & Corina Paraschiv, 2023. "Risking the future? Measuring risk attitudes towards delayed consequences," Post-Print hal-04385738, HAL.
    5. Kirsten I. M. Rohde, 2019. "Measuring Decreasing and Increasing Impatience," Management Science, INFORMS, vol. 65(4), pages 1700-1716, April.
    6. Sebastian Schweighofer-Kodritsch, 2015. "Time Preferences and Bargaining," STICERD - Theoretical Economics Paper Series /2015/568, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Emmanuel Kemel & Corina Paraschiv, 2021. "Risking the Future? Measuring Risk Attitudes towards Delayed Consequences," Working Papers hal-03330096, HAL.
    8. Anke Gerber & Kirsten I. M. Rohde, 2018. "Weighted temporal utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(1), pages 187-212, July.
    9. Tal Shavit, 2013. "The effect of optimism bias on time preference," Economics and Business Letters, Oviedo University Press, vol. 2(3), pages 128-133.

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