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Eliciting Risk and Time Preferences

Econometrica, 2008-05, Vol.76 (3), p.583-618 [Peer Reviewed Journal]

Copyright 2008 The Econometric Society ;Copyright © 2008 by The Econometric Society ;2008 INIST-CNRS ;Copyright Blackwell Publishing Ltd. May 2008 ;ISSN: 0012-9682 ;EISSN: 1468-0262 ;DOI: 10.1111/j.1468-0262.2008.00848.x ;CODEN: ECMTA7

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Title:
Eliciting Risk and Time Preferences
Author: Andersen, Steffen ; Harrison, Glenn W. ; Lau, Morten I. ; Rutström, E. Elisabet
Subjects: Adults ; Applications ; Applied economics ; Calculus of variations and optimal control ; Combinatorics ; Combinatorics. Ordered structures ; Denmark ; Designs and configurations ; Discount rate ; Discount rates ; Discounting ; Exact sciences and technology ; Experimental design ; Experimental economics ; field experiment ; Financial risk ; Insurance, economics, finance ; Lotteries ; Mathematical analysis ; Mathematical independent variables ; Mathematics ; Maximum likelihood estimation ; Maximum likelihood method ; Microeconomics ; Optimization ; Preferences ; Probability and statistics ; Risk ; Risk aversion ; Risk aversion preference ; Sciences and techniques of general use ; Statistics ; Studies ; Temptation ; Time ; Utility functions ; Utility rates
Is Part Of: Econometrica, 2008-05, Vol.76 (3), p.583-618
Description: We design experiments to jointly elicit risk and time preferences for the adult Danish population. Since subjects are generally risk averse, we find that joint elicitation provides estimates of discount rates that are significantly lower than those found in previous studies and more in line with what would be considered as a priori reasonable rates. The statistical specification relies on a theoretical framework that involves a latent trade-off between long-run optimization and short-run temptation. Estimation of this specification is undertaken using structural, maximum likelihood methods. Our main results based on exponential discounting are robust to alternative specifications such as hyperbolic discounting. These results have direct implications for attempts to elicit time preferences, as well as debates over the appropriate domain of the utility function when characterizing risk aversion and time consistency.
Publisher: Oxford, UK: Blackwell Publishing Ltd
Language: English
Identifier: ISSN: 0012-9682
EISSN: 1468-0262
DOI: 10.1111/j.1468-0262.2008.00848.x
CODEN: ECMTA7

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Eliciting Risk and Time Preferences

Copyright 2008 The Econometric Society ;Copyright © 2008 by The Econometric Society ;2008 INIST-CNRS ;Copyright Blackwell Publishing Ltd. May 2008 ;ISSN: 0012-9682 ;EISSN: 1468-0262 ;DOI: 10.1111/j.1468-0262.2008.00848.x ;CODEN: ECMTA7

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