Stochastic impatience and the separation of time and risk preferences

David Dillenberger (), Daniel Gottlieb () and Pietro Ortoleva ()
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David Dillenberger: Department of Economics, University of Pennsylvania
Daniel Gottlieb: Department of Management, LSE and Marshall School of Business, USC
Pietro Ortoleva: Department of Economics, Princeton University

Theoretical Economics, Forthcoming

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 \cite{EpsteinZin1989} and \cite{HansenSargent1995}, Stochastic Impatience is violated for \textit{all} 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 E7 G11 (search for similar items in EconPapers)
Date: 2024-11-07
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