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
PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania
Abstract:
We study how the separation between time and risk preferences relates to a new behavioral property that generalizes impatience to stochastic environments: Stochastic Impatience. We show that Stochastic Impatience holds if and only if risk aversion is \not too high" relative to the inverse elasticity of intertemporal substitution. This result has implications for many known models. For example, in the models of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for all commonly used parameters. If Stochastic Impatience is taken normatively, this suggests a limit on the amount of separation between time and risk preference; otherwise, it provides a simple one-question test for it.
Keywords: Stochastic Impatience; Epstein and Zin preferences; Separation of Risk and Time 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)
Pages: 36 pages
Date: 2018-09-08, Revised 2018-09-08
New Economics Papers: this item is included in nep-cbe and nep-upt
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Citations: View citations in EconPapers (3)
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Related works:
Working Paper: Stochastic Impatience and the Separation of Time and Risk Preferences (2020) 
Working Paper: Stochastic Impatience and the Separation of Time and Risk Preferences (2020) 
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Persistent link: https://EconPapers.repec.org/RePEc:pen:papers:18-020
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