Risk Preferences Are Not Time Preferences: Discounted Expected Utility with a Disproportionate Preference for Certainty
Risk and time are intertwined. The present is known while the future is inherently risky. Discounted expected utility provides a simple, coherent structure for analyzing decisions in intertemporal, uncertain environments. However, we document robust violations of discounted expected utility, inconsistent with both prospect theory probability weighting and models with preferences for the resolution of uncertainty. We find that we can organize our data with surprising precision if we allow for a disproportionate preference for certainty. These results have potentially important implications for understanding dynamically inconsistent preferences.
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| Length: | |
| Date of creation: | Sep 2010 |
| Publication status: | published as “Risk Preferences are Not Time Preferences.” with Charles Sprenger, American Economic Review , December 2012, 102 (7), 3357-3376. |
| Handle: | RePEc:nbr:nberwo:16348 |
| Note: | PE |
| Contact details of provider: | Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A. Phone: 617-868-3900 Web page: http://www.nber.org Email: More information through EDIRC
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References listed on IDEAS
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