Measuring Preferences Over the Temporal Resolution of Consumption Uncertainty

39 Pages Posted: 3 Sep 2015 Last revised: 21 Feb 2018

See all articles by Thomas Meissner

Thomas Meissner

Technische Universität Berlin (TU Berlin); Maastricht University - Department of Economics

Philipp Pfeiffer

European Union - European Commission; Technische Universität Berlin (TU Berlin)

Date Written: October 31, 2017

Abstract

We develop and test a novel experimental design that allows to directly elicit preferences over the temporal resolution of consumption uncertainty. To identify preferences over the temporal resolution of consumption uncertainty – as opposed to income uncertainty – we investigate choices over consumption (real effort). We find that on average subjects weakly prefer early resolution of consumption uncertainty: They are willing to forgo 4.52% of their total consumption in order to resolve all uncertainty immediately. However, this result is mainly driven by a minority with strong preferences for early resolution of consumption uncertainty. Most subjects are indifferent towards the temporal resolution of consumption uncertainty. To test whether the theoretical link between preferences over the temporal resolution of consumption uncertainty and preferences over risk, time and intertemporal substitution holds as formulated in recursive utility models, we additionally elicit these preferences experimentally. Surprisingly, we find that recursive utility has no predictive power in explaining preferences over the temporal resolution of consumption uncertainty.

Keywords: Recursive Utility, Timing of Resolution of Uncertainty, Preference Elicitation

JEL Classification: C90, D80, D90

Suggested Citation

Meissner, Thomas and Pfeiffer, Philipp, Measuring Preferences Over the Temporal Resolution of Consumption Uncertainty (October 31, 2017). Available at SSRN: https://ssrn.com/abstract=2654668 or http://dx.doi.org/10.2139/ssrn.2654668

Thomas Meissner (Contact Author)

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

Maastricht University - Department of Economics ( email )

P.O. Box 616
Maastricht, 6200 MD
Netherlands

Philipp Pfeiffer

European Union - European Commission ( email )

Rue de la Loi 200
Brussels, B-1049
Belgium

Technische Universität Berlin (TU Berlin) ( email )

Straße des 17
Juni 135
Berlin, 10623
Germany

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