Risk tolerance in the present and the future: an experimental study

Charles Noussair and Ping Wu
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Ping Wu: Information and Decision Sciences, Carlson School of Management, University of Minnesota, 321, 19th Avenue S., Minneapolis, M N 55455, USA, Postal: Information and Decision Sciences, Carlson School of Management, University of Minnesota, 321, 19th Avenue S., Minneapolis, M N 55455, USA

Managerial and Decision Economics, 2006, vol. 27, issue 6, pages 401-412

Abstract: We design an experiment to study the consistency of risk preferences between lotteries that are resolved and paid in the present versus in the future. The results show that a substantial fraction of subjects (38.6%) exhibits a greater level of risk aversion for lotteries resolved and paid in the present than in the future. Additional treatments suggest that the effect is neither specific to gambles that are realized immediately, nor is due to steep discounting of future payoffs. Our experiment suggests that risk tolerance increases the farther in the future the gamble is realized. Copyright © 2006 John Wiley & Sons, Ltd.

Date: 2006
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