IDEAS home Printed from https://ideas.repec.org/a/the/publsh/5771.html
   My bibliography  Save this article

Stochastic impatience and the separation of time and risk preferences

Author

Listed:
  • Dillenberger, David

    (Department of Economics, University of Pennsylvania)

  • Gottlieb, Daniel

    (Department of Management, LSE and Marshall School of Business, USC)

  • Ortoleva, Pietro

    (Department of Economics, Princeton University)

Abstract

We study how the separation of time and risk preferences relates to a property called Stochastic Impatience. We show that, within a broad class of models, Stochastic Impatience holds if and only if risk aversion and the inverse elasticity of intertemporal substitution are sufficiently close. In the models of \cite{EpsteinZin1989} and \cite{HansenSargent1995}, Stochastic Impatience is violated for \textit{all} commonly used parameters. Our result also provides a simple, one-question test for the separation of time and risk preferences.

Suggested Citation

  • Dillenberger, David & Gottlieb, Daniel & Ortoleva, Pietro, 0. "Stochastic impatience and the separation of time and risk preferences," Theoretical Economics, Econometric Society.
    • Handle: RePEc:the:publsh:5771
    as

    Download full text from publisher

    File URL: http://econtheory.org/ojs/index.php/te/article/viewForthcomingFile/5771/40588/1
    File Function: Working paper version. Paper will be copyedited and typeset before publication.
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Tversky, Amos & Kahneman, Daniel, 1992. "Advances in Prospect Theory: Cumulative Representation of Uncertainty," Journal of Risk and Uncertainty, Springer, vol. 5(4), pages 297-323, October.
    2. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
    3. Larry G. Epstein & Martin Schneider, 2010. "Ambiguity and Asset Markets," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 315-346, December.
    4. Scott F. Richard, 1975. "Multivariate Risk Aversion, Utility Independence and Separable Utility Functions," Management Science, INFORMS, vol. 22(1), pages 12-21, September.
    5. Gul, Faruk, 1991. "A Theory of Disappointment Aversion," Econometrica, Econometric Society, vol. 59(3), pages 667-686, May.
    6. Dean, Mark & Ortoleva, Pietro, 2017. "Allais, Ellsberg, and preferences for hedging," Theoretical Economics, Econometric Society, vol. 12(1), January.
    7. Larry G. Epstein, 1999. "A Definition of Uncertainty Aversion," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 66(3), pages 579-608.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2017. "Stochastic Impatience and the Separation of Time and Risk Preferences," PIER Working Paper Archive 20-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 05 Jul 2020.
    2. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2020. "Time Lotteries and Stochastic Impatience," Econometrica, Econometric Society, vol. 88(2), pages 619-656, March.
    3. Zvi Safra & Uzi Segal, 2005. "Are Universal Preferences Possible? Calibration Results for Non-Expected Utility Theories," Boston College Working Papers in Economics 633, Boston College Department of Economics.
    4. Evren, Özgür, 2019. "Recursive non-expected utility: Connecting ambiguity attitudes to risk preferences and the level of ambiguity," Games and Economic Behavior, Elsevier, vol. 114(C), pages 285-307.
    5. Simone Cerreia‐Vioglio & David Dillenberger & Pietro Ortoleva, 2015. "Cautious Expected Utility and the Certainty Effect," Econometrica, Econometric Society, vol. 83, pages 693-728, March.
    6. Laurent Denant-Boemont & Olivier L’Haridon, 2013. "La rationalité à l'épreuve de l'économie comportementale," Revue française d'économie, Presses de Sciences-Po, vol. 0(2), pages 35-89.
    7. Dean, Mark & Ortoleva, Pietro, 2017. "Allais, Ellsberg, and preferences for hedging," Theoretical Economics, Econometric Society, vol. 12(1), January.
    8. Jean Baccelli, 2018. "Risk Attitudes in Axiomatic Decision Theory: a Conceptual Perspective," Post-Print hal-01620886, HAL.
    9. Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2014. "Time Lotteries, Second Version," PIER Working Paper Archive 15-026v2, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 12 Jan 2018.
    10. Jean Baccelli, 2018. "Risk attitudes in axiomatic decision theory: a conceptual perspective," Theory and Decision, Springer, vol. 84(1), pages 61-82, January.
    11. Wakker, Peter P. & Yang, Jingni, 2019. "A powerful tool for analyzing concave/convex utility and weighting functions," Journal of Economic Theory, Elsevier, vol. 181(C), pages 143-159.
    12. Fan Wang, 2022. "Rank-Dependent Utility Under Multiple Priors," Management Science, INFORMS, vol. 68(11), pages 8166-8183, November.
    13. Markus Dertwinkel-Kalt & Jonas Frey, 2020. "Optimal Stopping in a Dynamic Salience Model," CESifo Working Paper Series 8496, CESifo.
    14. Yokoo, Hide-Fumi & Arimura, Toshi H. & Chattopadhyay, Mriduchhanda & Katayama, Hajime, 2023. "Subjective risk belief function in the field: Evidence from cooking fuel choices and health in India," Journal of Development Economics, Elsevier, vol. 161(C).
    15. Olivier Chanel & Graciela Chichilnisky, 2009. "The influence of fear in decisions: Experimental evidence," Journal of Risk and Uncertainty, Springer, vol. 39(3), pages 271-298, December.
    16. Raquel M. Gaspar & Paulo M. Silva, 2023. "Investors’ perspective on portfolio insurance," Portuguese Economic Journal, Springer;Instituto Superior de Economia e Gestao, vol. 22(1), pages 49-79, January.
    17. Wang, Di, 2021. "Attention-driven probability weighting," Economics Letters, Elsevier, vol. 203(C).
    18. Mohammed Abdellaoui & Enrico Diecidue & Emmanuel Kemel & Ayse Onculer, 2022. "Temporal Risk: Utility vs. Probability Weighting," Management Science, INFORMS, vol. 68(7), pages 5162-5186, July.
    19. Albrecht, Peter & Huggenberger, Markus, 2017. "The fundamental theorem of mutual insurance," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 180-188.
    20. Matthew D. Rablen, 2023. "Loss Aversion, Risk Aversion, and the Shape of the Probability Weighting Function," Working Papers 2023013, The University of Sheffield, Department of Economics.

    More about this item

    Keywords

    Stochastic impatience; Epstein-Zin preferences; separation of time and risk preferences; Risk Sensitive preferences; non-expected utility;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:the:publsh:5771. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Martin J. Osborne (email available below). General contact details of provider: http://econtheory.org .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.