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On the Elicitation of Time Preference under Conditions of Risk

  • Cheung, Stephen L.

Andreoni and Sprenger (2012) report evidence that distinct utility functions govern choices under certainty and risk. I investigate the robustness of this result to the experimental design. I find that the effect disappears completely when a multiple price list instrument is used instead of a convex time budget design. Alternatively, the effect is reduced by half when sooner and later payment risks are realized using a single lottery instead of two independent lotteries. The result is thus at least partially driven by intertemporal diversification, supporting an explanation in terms of concavity of the intertemporal, and not only atemporal, utility function.

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Paper provided by University of Sydney, School of Economics in its series Working Papers with number 2013-15.

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Date of creation: Sep 2013
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Handle: RePEc:syd:wpaper:2123/9362
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  1. Robin Cubitt & Daniel Read, 2005. "Can intertemporal choice experiments elicit time preferences for consumption?," Discussion Papers 2005-16, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  3. James C. Cox & Vjollca Sadiraj & Ulrich Schmidt, 2011. "Paradoxes and Mechanisms for Choice under Risk," Experimental Economics Center Working Paper Series 2011-07, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Mar 2014.
  4. James Andreoni & Charles Sprenger, 2010. "Estimating Time Preferences from Convex Budgets," NBER Working Papers 16347, National Bureau of Economic Research, Inc.
  5. Susan K. Laury & Melayne Morgan McInnes & J. Todd Swarthout & Erica Von Nessen, 2011. "Avoiding the Curves: Direct Elicitation of Time Preferences," Experimental Economics Center Working Paper Series 2011-01, Experimental Economics Center, Andrew Young School of Policy Studies, Georgia State University, revised Mar 2012.
  6. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, vol. 40(2), pages 351-401, June.
  7. James Andreoni & Charles Sprenger, 2010. "Risk Preferences Are Not Time Preferences," Levine's Working Paper Archive 814577000000000452, David K. Levine.
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