Stochastic impatience and the separation of time and risk preferences

David Dillenberger, Daniel Gottlieb and Pietro Ortoleva

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

Abstract: We study how the separation of time and risk preferences relates to a property called Stochastic Impatience. We show that, within a broad class of models, Stochastic Impatience holds if and only if risk aversion and the inverse elasticity of intertemporal substitution are sufficiently close. In the models of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for commonly used parameters. Our result also provides a simple, one-question test for the separation of time and risk preferences.

Keywords: stochastic impatience; Epstein-Zin preferences; separation of time and risk preferences; risk sensitive preferences; non-expected utility (search for similar items in EconPapers)
JEL-codes: D81 D90 G11 (search for similar items in EconPapers)
Pages: 38 pages
Date: 2025-07-31
New Economics Papers: this item is included in nep-upt
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Published in Theoretical Economics, 31, July, 2025, 20(3), pp. 1043 - 1080. ISSN: 1933-6837

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