Eliciting Risk and Time Preferences

49 Pages Posted: 27 Dec 2005 Last revised: 15 Jan 2008

See all articles by Steffen Andersen

Steffen Andersen

Copenhagen Business School - Department of Finance; CEPR

Glenn W. Harrison

Georgia State University - J. Mack Robinson College of Business

Morten I. Lau

Durham Business School

E. Elisabet Rutström

University of Central Florida - College of Business Administration

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Abstract

We design experiments to jointly elicit risk and time preferences for the adult Danish population. We find that joint elicitation results in estimates of time preferences that are dramatically lower than those found in previous studies. Estimation of latent time preferences requires that one specify a theoretical structure to understand risk and time choices, but we show that our main results are robust to popular alternative specifications such as quasi-hyperbolic or hyperbolic discounting and prospect theoretic formulations of choice under uncertainty. We also find evidence that behavior is consistent with standard, exponential discounting models. 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.

Keywords: Field experiments, risk aversion, discount rates

JEL Classification: C93, D81, D91

Suggested Citation

Andersen, Steffen and Harrison, Glenn William and Lau, Morten Igel and Rutstrom, Elisabet, Eliciting Risk and Time Preferences. Econometrica, Forthcoming. Available at SSRN: https://ssrn.com/abstract=872325

Steffen Andersen (Contact Author)

Copenhagen Business School - Department of Finance ( email )

Solbjerg Plads 3
Frederiksberg C, DK - 2000
Denmark

CEPR ( email )

London
United Kingdom

Glenn William Harrison

Georgia State University - J. Mack Robinson College of Business ( email )

P.O. Box 4050
Atlanta, GA 30303-3083
United States
407-489-3088 (Phone)
253-830-7636 (Fax)

HOME PAGE: http://www.cear.gsu.edu/

Morten Igel Lau

Durham Business School ( email )

Mill Hill Lane
Durham, DH1 3LB
United Kingdom

Elisabet Rutstrom

University of Central Florida - College of Business Administration ( email )

PO Box 161400
Orlando, FL 32816
United States

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