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  3. American Economic Review
  4. December 2012
  5. Risk Preferences Are Not Time Preferences

American Economic Review

ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)

Risk Preferences Are Not Time Preferences

  • James Andreoni
  • Charles Sprenger
American Economic Review
vol. 102, no. 7, December 2012
(pp. 3357–76)
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Abstract

Risk and time are intertwined. The present is known while the future is inherently risky. This is problematic when studying time preferences since uncontrolled risk can generate apparently present-biased behavior. We systematically manipulate risk in an intertemporal choice experiment. Discounted expected utility performs well with risk, but when certainty is added common ratio predictions fail sharply. The data cannot be explained by prospect theory, hyperbolic discounting, or preferences for resolution of uncertainty, but seem consistent with a direct preference for certainty. The data suggest strongly a difference between risk and time preferences. (JEL C91 D81 D91)

Citation

Andreoni, James, and Charles Sprenger. 2012. "Risk Preferences Are Not Time Preferences." American Economic Review, 102 (7): 3357–76. DOI: 10.1257/aer.102.7.3357

Additional Materials

JEL Classification

  • C91 Design of Experiments: Laboratory, Individual
  • D81 Criteria for Decision-Making under Risk and Uncertainty
  • D15 Intertemporal Consumer Choice; Life Cycle Models and Saving