Risk Preferences Are Not Time Preferences: Balancing on a Budget Line: Comment
- (pp. 2261-71)
Abstract
In a recent experimental study of intertemporal risky decision making, Andreoni and Sprenger (2012) find that subjects exhibit a preference for intertemporal diversification, which is inconsistent with discounted expected utility theory. It was claimed that their results are also at odds with models involving probability weighting, such as rank-dependent utility and cumulative prospect theory. Here we demonstrate, however, that rank-dependent probability weighting explains intertemporal diversification if decision makers care about portfolio risk. Moreover, we provide a unified account of all of Andreoni and Sprenger's key findings. (JEL C91, D81, D91)Citation
Epper, Thomas, and Helga Fehr-Duda. 2015. "Risk Preferences Are Not Time Preferences: Balancing on a Budget Line: Comment." American Economic Review, 105 (7): 2261-71. DOI: 10.1257/aer.20130420Additional Materials
JEL Classification
- C91 Design of Experiments: Laboratory, Individual
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D15 Intertemporal Household Choice; Life Cycle Models and Saving