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Risk and time preferences interaction: An experimental measurement

Author

Listed:
  • Jeeva Somasundaram

    (IE Business School)

  • Vincent Eli

    (S3 Labs, HEC Paris)

Abstract

We experimentally characterize and measure the interaction between risk and time preferences. Our results indicate that risk and time preferences are intertwined. We find that decision makers are insensitive to time delay for small probabilities of gains, but become progressively more sensitive to time delay as the probability of gain increases. We compare the fit of existing decision models that capture risk and time preferences. Our results indicate that the models which allow for probability-time interaction and capture magnitude effect fit the data better. We also show that accounting for risk-time preferences interaction leads to lower estimated discount rates.

Suggested Citation

  • Jeeva Somasundaram & Vincent Eli, 2022. "Risk and time preferences interaction: An experimental measurement," Journal of Risk and Uncertainty, Springer, vol. 65(2), pages 215-238, October.
    • Handle: RePEc:kap:jrisku:v:65:y:2022:i:2:d:10.1007_s11166-022-09394-9
    DOI: 10.1007/s11166-022-09394-9
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    More about this item

    Keywords

    Risk attitudes; Time preferences; Risk-time preferences interaction;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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