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Time Lotteries, Second Version

Author

Listed:
  • Patrick DeJarnette

    () (Department of Economics, National Taiwan University)

  • David Dillenberger

    () (Department of Economics, University of Pennsylvania)

  • Daniel Gottlieb

    () (Department of Economics, Washington University in St. Louis)

  • Pietro Ortoleva

    () (Department of Economics, Princeton University)

Abstract

We study preferences over lotteries that pay a specific prize at uncertain future dates: time lotteries. The standard model of time preferences, Expected Discounted Utility (EDU), implies that individuals must be risk seeking in this case. As a motivation, we show in an incentivized experiment that most subjects exhibit the opposite behavior, i.e., they are risk averse over time lotteries (RATL). We then make two theoretical contributions. First, we show that RATL can be captured by a generalization of EDU that is obtained by keeping the postulates of Discounted Utility and Expected Utility. Second, we introduce a new property termed Stochastic Impatience, a risky counterpart of standard Impatience, and show that not only the model above, but also substantial generalizations that allow for non-Expected Utility and non exponential discounting, cannot jointly accommodate it and RATL, showing a fundamental tension between the two.

Suggested Citation

  • Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2014. "Time Lotteries, Second Version," PIER Working Paper Archive 15-026v2, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 12 Jan 2018.
  • Handle: RePEc:pen:papers:15-026v2
    as

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    File URL: https://economics.sas.upenn.edu/sites/default/files/filevault/SSRN_15-026_v2.pdf
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Expected Discounted Utility; Separation of Risk and Time preferences; Time Lotteries; Stochastic Impatience;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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