Eliciting Risk and Time Preferences

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