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A Dual System Model of Risk and Time Preferences

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  • Mark Schneider

    (University of Alabama)

Abstract

Discounted Expected Utility theory has been a workhorse in economic analysis for over half a century. However, it cannot explain empirical violations of `dimensional independence' demonstrating that risk interacts with time preference and time interacts with risk preference, nor does it explain present bias or magnitudedependence in risk and time preferences, or correlations between risk preference, time preference, and cognitive reection. We demonstrate that these and other anomalies are explained by a dual system model of risk and time preferences that unies models of a rational economic agent, models based on prospect theory, and dual process models of decision making.

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  • Mark Schneider, 2018. "A Dual System Model of Risk and Time Preferences," Working Papers 18-18, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:18-18
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/257/
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    More about this item

    Keywords

    Risk; Time; Dimensional Independence;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General

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