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 & Harris Schlesinger, 2006.
"Putting Risk in Its Proper Place,"
American Economic Review,
American Economic Association, vol. 96(1), pages 280-289, March.
- EECKHOUDT, Louis & SCHLESINGER, Harris, . "Putting risk in its proper place," CORE Discussion Papers RP 1871, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- L. Eeckhoudt & H. Schlesinger, 2006. "Putting risk in its proper place," Post-Print hal-00283170, HAL.
- Louis Eeckhoudt & Harris Schlesinger, 2005. "Putting Risk in its Proper Place," CESifo Working Paper Series 1462, CESifo Group Munich.
- 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.
- W. Pesendorfer & F. Gul, 1999.
"Temptation and Self-Control,"
Princeton Economic Theory Papers
99f1, Economics Department, Princeton University.
- Battaglini, Marco & Bénabou, Roland & Tirole, Jean, 2003.
"Self-Control in Peer Groups,"
IDEI Working Papers
189, Institut d'Économie Industrielle (IDEI), Toulouse.
- Miles S. Kimball, 1989.
"Precautionary Saving in the Small and in the Large,"
NBER Working Papers
2848, National Bureau of Economic Research, Inc.
- Kimball, Miles S, 1990. "Precautionary Saving in the Small and in the Large," Econometrica, Econometric Society, vol. 58(1), pages 53-73, January.
- 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.
- Menegatti, Mario, 2009.
"Optimal prevention and prudence in a two-period model,"
Mathematical Social Sciences,
Elsevier, vol. 58(3), pages 393-397, November.
- M. Menegatti, 2008. "Optimal prevention and prudence in a two-period model," Economics Department Working Papers 2008-EP03, Department of Economics, Parma University (Italy).
- Dionne, Georges & Li, Jingyuan, 2011.
"The impact of prudence on optimal prevention revisited,"
Elsevier, vol. 113(2), pages 147-149.
- Jingyuan Li & Georges Dionne, 2010. "The Impact of Prudence on Optimal Prevention Revisited," Cahiers de recherche 1024, CIRPEE.
- 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.
- Laibson, David I., 1997.
"Golden Eggs and Hyperbolic Discounting,"
4481499, Harvard University Department of Economics.
- repec:oup:restud:v:67:y:2000:i:3:p:529-44 is not listed on IDEAS
- 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.
- L. Eeckhoudt & C. Gollier, 2005.
"The impact of prudence on optimal prevention,"
- Akerlof, George A, 1991. "Procrastination and Obedience," American Economic Review, American Economic Association, vol. 81(2), pages 1-19, May.
- 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.
- Salanie, Francois & Treich, Nicolas, 2006. "Over-savings and hyperbolic discounting," European Economic Review, Elsevier, vol. 50(6), pages 1557-1570, August.
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.