Risk Preferences Are Not Time Preferences: Discounted Expected Utility with a Disproportionate Preference for Certainty

James Andreoni and Charles Sprenger

No 16348, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Risk and time are intertwined. The present is known while the future is inherently risky. Discounted expected utility provides a simple, coherent structure for analyzing decisions in intertemporal, uncertain environments. However, we document robust violations of discounted expected utility, inconsistent with both prospect theory probability weighting and models with preferences for the resolution of uncertainty. We find that we can organize our data with surprising precision if we allow for a disproportionate preference for certainty. These results have potentially important implications for understanding dynamically inconsistent preferences.

JEL-codes: D81 D90 (search for similar items in EconPapers)
Date: 2010-09
Note: PE
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published as “Risk Preferences are Not Time Preferences.” with Charles Sprenger, American Economic Review , December 2012, 102 (7), 3357-3376.

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