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On the Elicitation of Time Preference under Conditions of Risk

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  • Cheung, Stephen L.

Abstract

Andreoni and Sprenger (2012) report evidence that distinct utility functions govern choices under certainty and risk. I investigate the robustness of this result to the experimental design. I find that the effect disappears completely when a multiple price list instrument is used instead of a convex time budget design. Alternatively, 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 at least partially driven by intertemporal diversification, supporting an explanation in terms of concavity of the intertemporal, and not only atemporal, utility function.

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File URL: http://hdl.handle.net/2123/9362
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Bibliographic Info

Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-15.

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Date of creation: Sep 2013
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Handle: RePEc:syd:wpaper:2123/9362

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Postal: Sydney, NSW 2006
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Web page: http://sydney.edu.au/arts/economics
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Keywords: multiple price list; convex time budget; risk and certainty; intertemporal choice;

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  1. Robin Cubitt & Daniel Read, 2007. "Can intertemporal choice experiments elicit time preferences for consumption?," Experimental Economics, Springer, Springer, vol. 10(4), pages 369-389, December.
  2. Susan Laury & Melayne McInnes & J. Todd Swarthout, 2012. "Avoiding the curves: Direct elicitation of time preferences," Journal of Risk and Uncertainty, Springer, Springer, vol. 44(3), pages 181-217, June.
  3. James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011. "Paradoxes and Mechanisms for Choice under Risk," Kiel Working Papers 1712, Kiel Institute for the World Economy.
  4. James Andreoni & Charles Sprenger, 2010. "Estimating Time Preferences from Convex Budgets," Levine's Working Paper Archive 814577000000000457, David K. Levine.
  5. James Andreoni & Charles Sprenger, 2010. "Risk Preferences Are Not Time Preferences," Levine's Working Paper Archive 814577000000000452, David K. Levine.
  6. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 3(4), pages 323-343, December.
  7. 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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