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Is diminishing impatience in time-dated risky prospects explained by probability weighting?

Author

Listed:
  • Holden, Stein T.

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

  • Tilahun, Mesfin

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

  • Sommervoll, Dag Einar

    (Centre for Land Tenure Studies, Norwegian University of Life Sciences)

Abstract

We use a field experiment and a within-subject design based on multiple Choice Lists (CLs) that integrate time and risk. Diminishing impatience with extended time horizons is studied by varying time horizons from one week to two years. Time-dated risky prospects are constant within CLs and are always compared with time-dated certain amounts to identify time-dated Certainty Equivalents. Non-linear probability weighting is modeled with a 2-parameter Prelec function. First, we identify a strong diminishing impatience associated with longer time delay between prospects. Second, we test whether non-linear probability weighting can explain and reduce the observed diminishing impatience by replacing linear probability weighting with an estimated inverted S-shaped Prelec function. We find that this does not reduce the observed degree of diminishing impatience. We conclude that the observed diminishing impatience is neither explained by the combination of present bias and certainty bias nor by non-linear weighting of risk in future prospects.

Suggested Citation

  • Holden, Stein T. & Tilahun, Mesfin & Sommervoll, Dag Einar, 2022. "Is diminishing impatience in time-dated risky prospects explained by probability weighting?," CLTS Working Papers 3/22, Norwegian University of Life Sciences, Centre for Land Tenure Studies.
  • Handle: RePEc:hhs:nlsclt:2022_003
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    References listed on IDEAS

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    More about this item

    Keywords

    Time preferences; Diminishing impatience; Risky preferences; Probability weighting; Field experiment; Within-subject design;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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