Stochastic Impatience and the Separation of Time and Risk Preferences

David Dillenberger (), Daniel Gottlieb () and Pietro Ortoleva ()
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David Dillenberger: University of Pennsylvania
Pietro Ortoleva: Princeton University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We study how the separation of time and risk preferences relates to a behavioral property that generalizes impatience to stochastic environments: Stochastic Impatience. We show that, within a broad class of models, Stochastic Impatience holds if and only if risk aversion is not too high relative to the inverse of the elasticity of intertemporal substitution. In par-ticular, in the models of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for all commonly used parameters.

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)
Pages: 41 pages
Date: 2017-10-01, Revised 2020-07-05
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Citations: View citations in EconPapers (8)

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Working Paper: Stochastic Impatience and the Separation of Time and Risk Preferences (2018)
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