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Risk and preference reversals in intertemporal choice

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  • Gerber, Anke
  • Rohde, Kirsten I.M.

Abstract

Abstract This paper argues that observations of non-stationary choice behavior need not necessarily imply specific properties of the individual's discount function. As we show, the observed preference reversals in intertemporal choice are consistent with constant discounting and can alternatively be explained by decreasing absolute risk aversion together with the individual's risk perception. This risk may concern the size of the actual outcome or the endowment consumption stream to which the outcome is added. Both types of uncertainty naturally appear in the context of intertemporal choice. We show how relative degrees of changes in risk over time can determine choices.

Suggested Citation

  • Gerber, Anke & Rohde, Kirsten I.M., 2010. "Risk and preference reversals in intertemporal choice," Journal of Economic Behavior & Organization, Elsevier, vol. 76(3), pages 654-668, December.
  • Handle: RePEc:eee:jeborg:v:76:y:2010:i:3:p:654-668
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    Citations

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    Cited by:

    1. Han Bleichrodt & Yu Gao & Kirsten I. M. Rohde, 2016. "A measurement of decreasing impatience for health and money," Journal of Risk and Uncertainty, Springer, vol. 52(3), pages 213-231, June.
    2. Therese Grijalva & Jayson Lusk & W. Shaw, 2014. "Discounting the Distant Future: An Experimental Investigation," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 59(1), pages 39-63, September.
    3. Anke Gerber & Kirsten I.M. Rohde, 2009. "Eliciting Discount Functions when Baseline Consumption changes over Time," Tinbergen Institute Discussion Papers 09-103/1, Tinbergen Institute, revised 20 Nov 2014.
    4. Sebastian Schweighofer-Kodritsch, 2015. "Time Preferences and Bargaining," STICERD - Theoretical Economics Paper Series /2015/568, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    5. Nicole Senecal & Teresa Wang & Elizabeth Thompson & Joseph W. Kable, 2012. "Normative arguments from experts and peers reduce delay discounting," Judgment and Decision Making, Society for Judgment and Decision Making, vol. 7(5), pages 568-589, September.
    6. Anke Gerber & Kirsten I.M. Rohde, 2013. "Weighted Temporal Utility," Tinbergen Institute Discussion Papers 13-167/1, Tinbergen Institute, revised 20 Nov 2014.
    7. Rohde, K.I.M., 2014. "Planning or Doing?," ERIM Inaugural Address Series Research in Management EIA-2014-056-MKT, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus University Rotterdam..
    8. Gerber, Anke & Rohde, Kirsten I.M., 2015. "Eliciting discount functions when baseline consumption changes over time," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 56-64.
    9. Tal Shavit, 2013. "The effect of optimism bias on time preference," Economics and Business Letters, Oviedo University Press, vol. 2(3), pages 128-133.

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