Time preferences and risk aversion: Tests on domain differences

Abstract Reducing adverse environmental consequences of modern industrial agriculture requires an ecological transition of agricultural practices. An important determinant of adoption of new agricultural practices by producers is the perceived profitability of these practices. The profitability of ecological agricultural practices tends to rely on improved crop prices and reduced input use. Transition to such practices often entails increased profit volatility (risk) and long-term returns (temporal profile). Ideal candidates for transition would therefore be aware of the output price and input costs dimensions of their profitability, as well as willing to assume some risks and show patience to value long-term returns. We assessed the potential for such a transition along these three dimensions (profitability, risk aversion and time preferences) in a group of soybean producers in the agricultural frontier of the Brazilian Amazon. Primary data were collected using a questionnaire and economic tests in the region of Santarém (State of Pará, Brazil). We found that, while these producers have a low-risk aversion that could favor the adoption of new ecological practices, their focus on increasing yields to enhance profits and their high discount rates considerably reduces their propensity to adopt these practices.

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Risk aversion, time preferences, and out-migration. Experimental evidence from Ghana and Indonesia

Journal of Economic Behavior & Organization ◽

10.1016/j.jebo.2018.04.013 ◽

2018 ◽

Vol 150 ◽

pp. 132-148 ◽

Cited By ~ 2

Author(s):

Carina Goldbach ◽

Achim Schlüter

Keyword(s):

Risk Aversion ◽

Experimental Evidence ◽

Time Preferences

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Estimating Time Preferences from Convex Budgets

The American Economic Review ◽

10.1257/aer.102.7.3333 ◽

2012 ◽

Vol 102 (7) ◽

pp. 3333-3356 ◽

Cited By ~ 245

Author(s):

James Andreoni ◽

Charles Sprenger

Keyword(s):

Decision Making ◽

Risk Aversion ◽

Utility Function ◽

Time Preferences ◽

Economic Decision ◽

Economic Decision Making ◽

Measures Of Risk ◽

High Utility ◽

The Cost ◽

Allocation Decisions

Experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision-making. Such high rates are often attributed to present-biased discounting. A well-known bias of standard measurements is the assumption of linear consumption utility. Attempting to correct this bias using measures of risk aversion to identify concavity, researchers find reasonable discounting but at the cost of exceptionally high utility function curvature. We present a new methodology for identifying time preferences, both discounting and curvature, from simple allocation decisions. We find reasonable levels of both discounting and curvature and, surprisingly, dynamically consistent time preferences. (JEL C91, D12, D81)

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Why Buy Accident Forgiveness Policies? An Experiment

International Journal of Economics and Finance ◽

10.5539/ijef.v10n8p1 ◽

2018 ◽

Vol 10 (8) ◽

pp. 1

Author(s):

Fan Liu

Keyword(s):

Decision Making ◽

Risk Aversion ◽

Time Preferences ◽

Purchase Decision ◽

Risk Attitudes ◽

Purchase Decisions ◽

Risk Averse ◽

Product Price ◽

High Degree

Risk and time preferences influence the insurance purchase decisions under uncertainty. Accident forgiveness, often considered as “premium insurance,” protects policyholders against a premium increase in the next period if an at-fault accident occurs. In this paper, by conducting a unique experiment in the controlled laboratory conditions, we examine the role of risk and time preferences in accident forgiveness purchase decisions. We find that individual discount rates and product price significantly affect premium insurance purchase decision. Interestingly, we also find evidence that less risk averse policyholders in general behave more like risk neutral when making insurance decision. Risk attitudes affect insurance decision-making only among those who have relatively high degree of risk aversion.

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Using priming manipulations to affect time preferences and risk aversion: An experimental study

Journal of Behavioral and Experimental Economics ◽

10.1016/j.socec.2014.08.006 ◽

2014 ◽

Vol 53 ◽

pp. 36-43 ◽

Cited By ~ 9

Author(s):

Avi Israel ◽

Mosi Rosenboim ◽

Tal Shavit

Keyword(s):

Experimental Study ◽

Risk Aversion ◽

Time Preferences

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Rethinking how risk aversion and impatience are linked with cognitive ability: Experimental findings from agricultural students and farmers

10.31235/osf.io/7tvrb ◽

2021 ◽

Author(s):

Sven Gruener

Keyword(s):

Experimental Study ◽

Risk Aversion ◽

Cognitive Ability ◽

Real World ◽

American Economic Review ◽

Time Preferences ◽

Monetary Incentives ◽

P Values ◽

Agricultural Students ◽

Experimental Findings

Dohmen et al. (2010) describe in their paper, which has been published in the American Economic Review, that risk aversion and impatience are negatively related to cognitive ability. This topic is important because controlling for cognitive ability might be necessary if someone is interested in the link of risk preferences or time preferences to real-world outcomes. We re-examine their key results by conducting an experimental study using two subject pools (agricultural students and farmers) and three levels of monetary incentives. Similar to Dohmen et al. (2010), our study finds the above-described negative correlations. However, the strength of the association is smaller and the p-values are quite large.

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