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Risk Preferences Are Not Time Preferences: Comment

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  • Cheung, Stephen L.

    ()
    (University of Sydney)

Abstract

Andreoni and Sprenger (in press) report evidence that distinct utility functions govern choices under certainty and risk. I investigate the robustness of their result to the experimental design. I find that the effect disappears completely when a multiple price list is used instead of a convex time budget design. Also, the effect is reduced by half when sooner and later payment risks are realized using a single lottery instead of two independent lotteries. The result is thus partially driven by intertemporal diversification, suggesting an explanation in terms of concavity of the intertemporal, and not only the atemporal, utility function.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6762.

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Length: 36 pages
Date of creation: Jul 2012
Date of revision:
Handle: RePEc:iza:izadps:dp6762

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Related research

Keywords: multiple price list; convex time budget; risk and certainty; intertemporal choice;

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References

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  1. James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011. "Paradoxes and Mechanisms for Choice under Risk," Experimental Economics Center Working Paper Series 2011-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Mar 2014.
  2. James Andreoni & Charles Sprenger, 2010. "Risk Preferences Are Not Time Preferences," Levine's Working Paper Archive 814577000000000452, David K. Levine.
  3. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Eliciting Risk and Time Preferences," Econometrica, Econometric Society, vol. 76(3), pages 583-618, 05.
  4. Steffen Andersen & Glenn W. Harrison & Morten Lau & Elisabet E. Rutstroem, 2011. "Intertemporal Utility and Correlation Aversion," Working Papers 2011_03, Durham University Business School.
  5. Glenn W. Harrison & J. Todd Swarthout, 2011. "Can Intertemporal Choice Experiments Elicit Time Preferences for Consumption? Yes," Experimental Economics Center Working Paper Series 2011-09, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University.
  6. 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.
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Cited by:
  1. Drichoutis, Andreas & Nayga, Rodolfo, 2010. "Eliciting risk and time preferences under induced mood states," MPRA Paper 25731, University Library of Munich, Germany.
  2. Lawless, Lydia J.R. & Nayga, Rodolfo & Drichoutis, Andreas, 2013. "Time preference and health behaviour: A review," MPRA Paper 45382, University Library of Munich, Germany.
  3. Drichoutis, Andreas & Nayga, Rodolfo, 2013. "A reconciliation of time preference elicitation methods," MPRA Paper 46916, University Library of Munich, Germany, revised 12 May 2013.

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