Allais meets Strotz: Remarks on the relation between Present Bias and the Certainty Effect
The paper establishes a tight relation between non-standard behaviors in the domains of risk and time by considering a decision maker with non-expected utility preferences who believes that only present consumption is certain while any future consumption is uncertain. We provide the first complete characterization of the two-way relations between i) certainty effect and present bias, and, ii) common ratio effect and the common difference effect. A corollary to our results is that hyperbolic discounting implies the Common Ratio Effect and that quasi-hyperbolic discounting implies the Certainty Effect.
|Date of creation:||07 Feb 2015|
|Date of revision:||03 Nov 2016|
|Contact details of provider:|| Web page: http://www.economics.ubc.ca/|
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Yaari, Menahem E, 1987. "The Dual Theory of Choice under Risk," Econometrica, Econometric Society, vol. 55(1), pages 95-115, January.
- Yoram Halevy, 2008.
"Strotz Meets Allais: Diminishing Impatience and the Certainty Effect,"
American Economic Review,
American Economic Association, vol. 98(3), pages 1145-1162, June.
- Halevy, Yoram, 2004. "Strotz meets Allais: Diminishing Impatience and the Certainty Effect," Microeconomics.ca working papers yoram_halevy-2004-16, Vancouver School of Economics, revised 25 Feb 2014.
When requesting a correction, please mention this item's handle: RePEc:ubc:pmicro:yoram_halevy-2015-7. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Maureen Chin)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.