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Measuring Time and Risk Preferences: Reliability, Stability, Domain Specificity

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  • Riedl A.M.
  • Wölbert E.M.

    (GSBE)

Abstract

To accurately predict behavior economists need reliable measures of individual time preferences and attitudes toward risk and typically need to assume stability of these characteristics over time and across decision domains. We test the reliability of two choice tasks for eliciting discount rates, risk aversion, and probability weighting and assess the stability of these characteristics over timeand across situations. We find high reliability and that individual characteristics are remarkably stable over time. The estimated parameters correlate well with self-reported decisions in financial domains, but are largely uncorrelated with decisions in other important life domains involving intertemporal trade-offs and risk.

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File URL: http://pub.maastrichtuniversity.nl/85438f24-38be-4140-8232-2abdf8ca309c
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Bibliographic Info

Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 041.

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Date of creation: 2013
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Handle: RePEc:unm:umagsb:2013041

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Keywords: Methodological Issues: General; Design of Experiments: Laboratory; Individual; Behavioral Economics: Underlying Principles; Information; Knowledge; and Uncertainty: General; Intertemporal Choice and Growth: General;

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  1. Adrian Bruhin & Helga Fehr-Duda & Thomas Epper, 2007. "Risk and Rationality: Uncovering Heterogeneity in Probability Distortion," SOI - Working Papers 0705, Socioeconomic Institute - University of Zurich, revised Jul 2007.
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  9. Levon Barseghyan & Jeffrey Prince & Joshua C. Teitelbaum, 2011. "Are Risk Preferences Stable across Contexts? Evidence from Insurance Data," American Economic Review, American Economic Association, vol. 101(2), pages 591-631, April.
  10. Laibson, David I. & Berns, Gregory S. & Loewenstein, George, 2007. "Intertemporal Choice - Toward an Integrative Framework," Scholarly Articles 4554332, Harvard University Department of Economics.
  11. James Andreoni & Charles Sprenger, 2010. "Risk Preferences Are Not Time Preferences," Levine's Working Paper Archive 814577000000000452, David K. Levine.
  12. Nava Ashraf & Dean Karlan & Wesley Yin, 2006. "Tying Odysseus to the Mast: Evidence from a Commitment Savings Product in the Philippines," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 635-672, May.
  13. Borghans, Lex & Golsteyn, Bart H.H., 2005. "Time Discounting and the Body Mass Index," IZA Discussion Papers 1597, Institute for the Study of Labor (IZA).
  14. Helga Fehr-Duda & Thomas Epper, 2012. "Probability and Risk: Foundations and Economic Implications of Probability-Dependent Risk Preferences," Annual Review of Economics, Annual Reviews, vol. 4(1), pages 567-593, 07.
  15. Steffen Andersen & Glenn W. Harrison & Morten I. Lau & E. Elisabet Rutström, 2008. "Lost In State Space: Are Preferences Stable?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 49(3), pages 1091-1112, 08.
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