American Economic Review: Vol. 102 No. 7 (December 2012)


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Risk Preferences Are Not Time Preferences

Article 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


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)

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Andreoni, James (U CA, San Diego)
Sprenger, Charles (Stanford U)

JEL Classifications

C91: Design of Experiments: Laboratory, Individual
D81: Criteria for Decision-Making under Risk and Uncertainty
D91: Intertemporal Consumer Choice; Life Cycle Models and Saving

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