Risk Preferences are Not Time Preferences: Discounted Expected Utility with a Disproportionate Preference for Certainty

43 Pages Posted: 13 Sep 2010 Last revised: 3 Mar 2024

See all articles by James Andreoni

James Andreoni

University of California, San Diego (UCSD)

Charles Sprenger

University of California, San Diego (UCSD)

Date Written: September 2010

Abstract

Risk and time are intertwined. The present is known while the future is inherently risky. Discounted expected utility provides a simple, coherent structure for analyzing decisions in intertemporal, uncertain environments. However, we document robust violations of discounted expected utility, inconsistent with both prospect theory probability weighting and models with preferences for the resolution of uncertainty. We find that we can organize our data with surprising precision if we allow for a disproportionate preference for certainty. These results have potentially important implications for understanding dynamically inconsistent preferences.

Suggested Citation

Andreoni, James and Sprenger, Charles, Risk Preferences are Not Time Preferences: Discounted Expected Utility with a Disproportionate Preference for Certainty (September 2010). NBER Working Paper No. w16348, Available at SSRN: https://ssrn.com/abstract=1674792

James Andreoni (Contact Author)

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
La Jolla, CA 92093-0508
United States

HOME PAGE: http://econ.ucsd.edu/~jandreon/

Charles Sprenger

University of California, San Diego (UCSD) ( email )

9500 Gilman Drive
Mail Code 0502
La Jolla, CA 92093-0112
United States

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