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Risk Preferences Are Not Time Preferences*

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Author

Listed:
  • James Andreoni
  • Charles Sprenger

Abstract

Risk 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)

Suggested Citation

  • James Andreoni & Charles Sprenger, 2012. "Risk Preferences Are Not Time Preferences," American Economic Review, American Economic Association, vol. 102(7), pages 3357-3376, December.
  • Handle: RePEc:aea:aecrev:v:102:y:2012:i:7:p:3357-76
    Note: DOI: 10.1257/aer.102.7.3357
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    References listed on IDEAS

    as
    1. Kahneman, Daniel & Tversky, Amos, 1979. "Prospect Theory: An Analysis of Decision under Risk," Econometrica, Econometric Society, vol. 47(2), pages 263-291, March.
    2. Yoram Halevy, 2008. "Strotz Meets Allais: Diminishing Impatience and the Certainty Effect," American Economic Review, American Economic Association, vol. 98(3), pages 1145-1162, June.
    Full references (including those not matched with items on IDEAS)

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    Replication

    This item has been replicated by:
  • Stephen L. Cheung, 2015. "Risk Preferences Are Not Time Preferences: On the Elicitation of Time Preference under Conditions of Risk: Comment," American Economic Review, American Economic Association, vol. 105(7), pages 2242-2260, July.
  • More about this item

    JEL classification:

    • 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 - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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