Risk and Preference Reversals in Intertemporal Choice

Anke Gerbe () and Kirsten I.M. Rohde ()
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Anke Gerbe: Department of Economics - UHH - Universität Hamburg = University of Hamburg
Kirsten I.M. Rohde: Department of Economics - Department of Economics

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Abstract: This paper argues that observations of non-stationary choice behavior need not necessarily imply speci_c properties of the individual's discount function. As we show, the observed preference reversals in intertemporal choice are consistent with constant discounting and can alternatively be explained by decreasing absolute risk aversion together with the individual's risk perception. This risk may concern the size of the actual outcome or the endowment consumption stream to which the outcome is added. Both types of uncertainty naturally appear in the context of intertemporal choice. We show how relative degrees of changes in risk over time can determine choices.

Keywords: Hyperbolic Discounting; Decreasing Impatience; Increasing impatience; Risk (search for similar items in EconPapers)
Date: 2010-11-30
Note: View the original document on HAL open archive server: https://hal.science/hal-00911832v1
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Citations: View citations in EconPapers (11)

Published in Journal of Economic Behavior and Organization, 2010, 76 (3), pp.654. ⟨10.1016/j.jebo.2010.09.005⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-00911832

DOI: 10.1016/j.jebo.2010.09.005

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