Journal
AMERICAN ECONOMIC REVIEW
Volume 102, Issue 7, Pages 3357-3376Publisher
AMER ECONOMIC ASSOC
DOI: 10.1257/aer.102.7.3357
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Funding
- Direct For Social, Behav & Economic Scie
- Divn Of Social and Economic Sciences [0962484] Funding Source: National Science Foundation
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Risk and time are intertwined. The present is known while the future is inherently risky. This is problematic when studying time preferences since uncontrolled risk can generate apparently present-biased behavior. We systematically manipulate risk in an intertemporal choice experiment. Discounted expected utility performs well with risk, but when certainty is added common ratio predictions fail sharply. The data cannot be explained by prospect theory, hyperbolic discounting, or preferences for resolution of uncertainty, but seem consistent with a direct preference for certainty. The data suggest strongly a difference between risk and time preferences.
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