Commitment through risk
We show that risk-averse hyperbolic-discounting agents can benefit from positive exposure to risk and thus behave as if risk-loving. When the benefits of costly effort are delayed, selecting some risk concerning the outcome of one’s own effort can serve as an intrapersonal commitment device for exerting higher effort, thereby attenuating the negative effect of time-inconsistency. Comparing the effects of time-inconsistency, risk aversion and prudence, we formulate an intuitive condition for risk exposure to be an optimal strategy and discuss several applications of this result.
If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Louis Eeckhoudt & Christian Gollier, 2005. "The impact of prudence on optimal prevention," Economic Theory, Springer, vol. 26(4), pages 989-994, November.
- Thaler, Richard H & Shefrin, H M, 1981.
"An Economic Theory of Self-Control,"
Journal of Political Economy,
University of Chicago Press, vol. 89(2), pages 392-406, April.
- Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
- M. Menegatti, 2008.
"Optimal prevention and prudence in a two-period model,"
Economics Department Working Papers
2008-EP03, Department of Economics, Parma University (Italy).
- Menegatti, Mario, 2009. "Optimal prevention and prudence in a two-period model," Mathematical Social Sciences, Elsevier, vol. 58(3), pages 393-397, November.
- Salanie, Francois & Treich, Nicolas, 2006. "Over-savings and hyperbolic discounting," European Economic Review, Elsevier, vol. 50(6), pages 1557-1570, August.
- Louis Eeckhoudt & Harris Schlesinger, 2006.
"Putting Risk in Its Proper Place,"
American Economic Review,
American Economic Association, vol. 96(1), pages 280-289, March.
- Kimball, Miles S, 1990.
"Precautionary Saving in the Small and in the Large,"
Econometric Society, vol. 58(1), pages 53-73, January.
- Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
- Block, M K & Heineke, J M, 1973. "The Allocation of Effort under Uncertainty: The Case of Risk-averse Behavior," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 376-85, Part I, M.
- Battaglini, Marco & Bénabou, Roland & Tirole, Jean, 2002.
"Self Control in Peer Groups,"
CEPR Discussion Papers
3149, C.E.P.R. Discussion Papers.
- Benabou, R. & Battaglini, M., 2001. "Self-Control in peer Groups," Papers 217, Princeton, Woodrow Wilson School - Public and International Affairs.
- Battaglini, Marco & Bénabou, Roland & Tirole, Jean, 2003. "Self-Control in Peer Groups," IDEI Working Papers 189, Institut d'Économie Industrielle (IDEI), Toulouse.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- Ambec, Stefan & Treich, Nicolas, 2007. "Roscas as financial agreements to cope with self-control problems," Journal of Development Economics, Elsevier, vol. 82(1), pages 120-137, January.
- repec:hal:journl:hal-00283170 is not listed on IDEAS
- Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
- Faruk Gul & Wolfgang Pesendorfer, 2001.
"Temptation and Self-Control,"
Econometric Society, vol. 69(6), pages 1403-1435, November.
- Carrillo, Juan D & Mariotti, Thomas, 2000. "Strategic Ignorance as a Self-Disciplining Device," Review of Economic Studies, Wiley Blackwell, vol. 67(3), pages 529-44, July.
- L. Eeckhoudt & C. Gollier, 2005. "The impact of prudence on optimal prevention," Post-Print hal-00199781, HAL.
- Jingyuan Li & Georges Dionne, 2010.
"The Impact of Prudence on Optimal Prevention Revisited,"
Cahiers de recherche
- Dionne, Georges & Li, Jingyuan, 2011. "The impact of prudence on optimal prevention revisited," Economics Letters, Elsevier, vol. 113(2), pages 147-149.
- Isabelle Brocas & Juan D. Carrillo, 2009. "Information Acquisition and Choice Under Uncertainty," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(2), pages 423-455, 06.
When requesting a correction, please mention this item's handle: RePEc:eee:ecolet:v:116:y:2012:i:3:p:295-297. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.