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A Dual System Model of Risk and Time Preferences

Mark Schneider ()
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Mark Schneider: University of Alabama

Working Papers from Chapman University, Economic Science Institute

Abstract: Discounted Expected Utility theory has been a workhorse in economic analysis for over half a century. However, it cannot explain empirical violations of `dimensional independence' demonstrating that risk interacts with time preference and time interacts with risk preference, nor does it explain present bias or magnitudedependence in risk and time preferences, or correlations between risk preference, time preference, and cognitive reection. We demonstrate that these and other anomalies are explained by a dual system model of risk and time preferences that unies models of a rational economic agent, models based on prospect theory, and dual process models of decision making.

Keywords: Risk; Time; Dimensional Independence (search for similar items in EconPapers)
JEL-codes: D01 D03 D81 D90 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cbe, nep-ore and nep-upt
Date: 2018
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