Stochastic Impatience and the Separation of Time and Risk Preferences

41 Pages Posted: 8 Jul 2020

See all articles by David Dillenberger

David Dillenberger

University of Pennsylvania - Department of Economics

Daniel Gottlieb

London School of Economics

Pietro Ortoleva

Princeton University - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: July 5, 2020

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 particular, 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

JEL Classification: D81, D90, G11, E7

Suggested Citation

Dillenberger, David and Gottlieb, Daniel and Ortoleva, Pietro, Stochastic Impatience and the Separation of Time and Risk Preferences (July 5, 2020). PIER Working Paper No. 20-026, Available at SSRN: https://ssrn.com/abstract=3645071 or http://dx.doi.org/10.2139/ssrn.3645071

David Dillenberger (Contact Author)

University of Pennsylvania - Department of Economics ( email )

Ronald O. Perelman Center for Political Science
133 South 36th Street
Philadelphia, PA 19104-6297
United States
215-898-1503 (Phone)

Daniel Gottlieb

London School of Economics ( email )

New Academic Building 5.30
Houghton Street
London, WC2A 2AE
United Kingdom

HOME PAGE: http://https://personal.lse.ac.uk/gottlied/

Pietro Ortoleva

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

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