scholarly journals Risk Preferences Are Not Time Preferences: Reply

2015 ◽  
Vol 105 (7) ◽  
pp. 2287-2293 ◽  
Author(s):  
James Andreoni ◽  
Charles Sprenger
Keyword(s):  
Intertemporal Choice ◽  
Risk Preferences ◽  
Time Preferences ◽  
Present Bias ◽  
Over Time

Can the well-known experimental phenomenon of present-bias in intertemporal choice be confounded with the risks associated with receiving payment? Can measurements of risk preferences be used to represent desires for smoothness in intertemporal payments? In our two 2012 papers in this journal we explored these two questions and found the answer to the first to be yes and the second to be no. We feel the three papers inspired by our work and published here underscore these arguments and point to interesting new possibilities for modeling and measuring risk over time. (JEL C91, D81, D91)

scholarly journals Risk Preferences Are Not Time Preferences

2012 ◽  
Vol 102 (7) ◽  
pp. 3357-3376 ◽  
Author(s):  
James Andreoni ◽  
Charles Sprenger
Keyword(s):  
Prospect Theory ◽  
Expected Utility ◽  
Choice Experiment ◽  
Intertemporal Choice ◽  
Risk Preferences ◽  
Hyperbolic Discounting ◽  
Time Preferences ◽  
Common Ratio ◽  
The Future

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)

Time Preferences across Language Groups: Evidence on Intertemporal Choices from the Swiss Language Border*

2021 ◽  
Author(s):  
Holger Herz ◽  
Martin Huber ◽  
Tjaša Maillard-Bjedov ◽  
Svitlana Tyahlo
Keyword(s):  
Hyperbolic Discounting ◽  
Time Preferences ◽  
Discount Factor ◽  
Socioeconomic Conditions ◽  
Measuring Time ◽  
Present Bias ◽  
Language Groups ◽  
Long Run ◽  
Intertemporal Choices

Abstract Differences in patience across language groups have recently received increased attention in the literature. We provide evidence on this issue by measuring time preferences of French and German speakers from a bilingual municipality in Switzerland where institutions are shared and socioeconomic conditions are very similar across the two language groups. We find that French speakers are significantly more impatient than German speakers, and differences are particularly pronounced when payments in the present are involved. Estimates of preference parameters of a quasi-hyperbolic discounting model suggest significant differences in both present bias (β) and the long-run discount factor (δ) across language groups.

The Performance of Time-Preference and Risk-Preference Measures in Surveys

2021 ◽  
Author(s):  
Joshua Tasoff ◽  
Wenjie Zhang
Keyword(s):  
Time Preference ◽  
Risk Preferences ◽  
Risk Preference ◽  
Time Preferences ◽  
Self Report ◽  
Data Set ◽  
Financial Decisions ◽  
Wide Range ◽  
Substantial Heterogeneity ◽  
Report Measure

Time preferences and risk preferences play an important role in a wide range of behavior, including financial decisions, entrepreneurship, and the proper incentivizing of agents. Numerous methods have been developed to measure these preferences hypothetically in surveys, but they have yielded inconsistent results. We analyze a panel data set in which subjects have collectively answered more than 400 surveys including 15 time-preference and 36 risk-preference elicitations. We evaluate the performance of these measures using the criteria of (1) ability to predict economically important behavior and (2) distinctness from other observables. We find substantial heterogeneity in the predictiveness of the measures. The best performing measure for time-preference is a titration method, in which a sequence of adaptive binary-choice questions narrows in on a subject’s indifference point, and for risk-preference it is a self-report measure of risk aversion. Using factor analysis, we find that time preferences are well explained by a single factor, but risk preferences load on multiple factors. However, the first factor loads almost entirely on self-reported risk-preference measures, and this factor explains much of the variation. The evidence can help inform researchers about which elicitation methods to include in their surveys. This paper was accepted by Yan Chen, decision analysis.

scholarly journals A Model of Focusing in Economic Choice*

2012 ◽  
Vol 128 (1) ◽  
pp. 53-104 ◽  
Author(s):  
Botond Kőszegi ◽  
Adam Szeidl
Keyword(s):  
Intertemporal Choice ◽  
Hyperbolic Discounting ◽  
Time Inconsistency ◽  
Monetary Incentives ◽  
Present Bias ◽  
Advantages And Disadvantages ◽  
Economic Choice ◽  
Lifestyle Choices ◽  
Ex Ante ◽  
A Current

Abstract We present a generally applicable theory of focusing based on the hypothesis that a person focuses more on, and hence overweights, attributes in which her options differ more. Our model predicts that the decision maker is too prone to choose options with concentrated advantages relative to alternatives, but maximizes utility when the advantages and disadvantages of alternatives are equally concentrated. Applying our model to intertemporal choice, these results predict that a person exhibits present bias and time inconsistency when—such as in lifestyle choices and other widely invoked applications of hyperbolic discounting—the future effect of a current decision is distributed over many dates, and the effects of multiple decisions accumulate. But unlike in previous models, in our theory (1) present bias is lower when the costs of current misbehavior are less dispersed, helping explain why people respond more to monetary incentives than to health concerns in harmful consumption; and (2) time inconsistency is lower when a person commits to fewer decisions with accumulating effects in her ex ante choice. In addition, a person does not fully maximize welfare even when making decisions ex ante: (3) she commits to too much of an activity—for example, exercise or work—that is beneficial overall; and (4) makes “future-biased” commitments when—such as in preparing for a big event—the benefit of many periods’ effort is concentrated in a single goal.

scholarly journals Working over Time: Dynamic Inconsistency in Real Effort Tasks *

2015 ◽  
Vol 130 (3) ◽  
pp. 1067-1115 ◽  
Author(s):  
Ned Augenblick ◽  
Muriel Niederle ◽  
Charles Sprenger
Keyword(s):  
Predictive Power ◽  
Experimental Tests ◽  
Time Inconsistency ◽  
Policy Implications ◽  
Dynamic Inconsistency ◽  
Time Dynamic ◽  
Present Bias ◽  
Monetary Rewards ◽  
Real Effort ◽  
Over Time

Abstract Experimental tests of dynamically inconsistent time preferences have largely relied on choices over time-dated monetary rewards. Several recent studies have failed to find the standard patterns of present bias. However, such monetary studies contain often-discussed confounds. In this article, we sidestep these confounds and investigate choices over consumption (real effort) in a longitudinal experiment. We pair this effort study with a companion monetary discounting study. We confirm very limited time inconsistency in monetary choices. However, subjects show considerably more present bias in effort. Furthermore, present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device. Therefore our findings validate a key implication of models of dynamic inconsistency, with corresponding policy implications.

scholarly journals Present Bias and Collective Dynamic Choice in the Lab

2014 ◽  
Vol 104 (12) ◽  
pp. 4184-4204 ◽  
Author(s):  
Matthew O. Jackson ◽  
Leeat Yariv
Keyword(s):  
Time Preferences ◽  
Dynamic Choice ◽  
Time Discounting ◽  
Collective Dynamic ◽  
Present Bias ◽  
Lab Experiments ◽  
Collective Decisions ◽  
As If

We study collective decisions by time-discounting individuals choosing a common consumption stream. We show that with any heterogeneity in time preferences, utilitarian aggregation necessitates a present bias. In lab experiments three quarters of “social planners” exhibited present biases, and less than two percent were time consistent. Roughly a third of subjects acted as if they were pure utilitarians, and the rest chose as if they also had varying degrees of distributional concerns. (JEL C91, D12, D71, D72)

scholarly journals A guaranteed immediate payout reduces impatience of financially constrained individuals

2022 ◽  
Vol 119 (3) ◽  
pp. e2108832119
Author(s):  
Kimberley van der Heijden ◽  
Anouk Festjens ◽  
Caroline Goukens ◽  
Tom Meyvis
Keyword(s):  
Lived Experiences ◽  
Intertemporal Choice ◽  
Time Preferences ◽  
Financial Strain ◽  
Financial Constraint ◽  
Capture Time ◽  
Future Needs ◽  
The Future ◽  
Choice Tasks

A large stream of literature found that individuals who experience financial strain are particularly concerned about their present needs—that is, they are more likely to choose smaller immediate payoffs over larger future payoffs. In contrast, some recent findings suggest that financially constrained individuals may be more concerned about future needs instead (e.g., they are relatively more likely to invest in long-lived durables than in short-lived experiences). We propose that the use of traditional intertemporal choice tasks has made prior studies overly sensitive to the myopia-inducing effects of financial constraint. These tasks typically offer a choice between receiving a smaller payoff in the present versus a larger payoff in the future. Across three studies, we observe that, as long as some immediate payout is guaranteed, financially constrained individuals are as likely as nonconstrained individuals to accept a delay for a larger payoff. These findings qualify prior demonstrations of the myopic effects of financial constraint and suggest that the traditionally used choice paradigm might not accurately capture time preferences, particularly for financially constrained individuals. Furthermore, they provide possible interventions for those interested in reducing the myopia of financially constrained individuals who are facing all now versus all later decisions.

Experimental Microfoundations for Resolve: II

2016 ◽  
Author(s):  
Joshua D. Kertzer
Keyword(s):  
Military Intervention ◽  
Risk Preferences ◽  
Demographic Characteristics ◽  
Self Control ◽  
Time Preferences ◽  
Behavioral Measure ◽  
Strongly Correlated ◽  
Military Interventions ◽  
Individual Level ◽  
Reputational Costs

This chapter investigates individual-level microfoundations of resolve in the context of public opinion about military interventions by conducting a national survey of American adults. The survey consisted of three parts: a factorial experiment manipulating the human and reputational costs of a hypothetical military intervention; a dispositional questionnaire measuring time preferences, risk preferences, and honor orientations; and a concluding questionnaire measuring general demographic characteristics. The results suggest that the costs of fighting have relatively little effect on the amount of resolve displayed by participants, while the reputational costs of backing down play a relatively significant one. The largest effects are dispositional: time and risk preferences are strongly correlated with resolve, as is a behavioral measure of trait self-control.

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