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Risk preferences may be time preferences: A comment on Andreoni and Sprenger (2012)

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  • Schmidt, Ulrich

Abstract

[Introduction] In an intensively discussed paper, Andreoni and Sprenger (2012), henceforth A&S, present an experiment where subjects can allocate money between two different points of time under the condition of risk. A&S claim that their results refute discounted expected utility (DEU) as well as prospect theory and other models relying on probability weighting. In this note I will show that the theoretical analysis of A&S is inappropriate and, therefore, that their claims are not valid. It turns out, that the experimental results of A&S are fully in line with DEU. The main problem of A&S's analysis is that is confounds income with consumption. There exist several other comments on A&S (Miao and Zhong, 2012; Epper and Fehr-Duda, 2014 and Cheung, 2014) which discuss interesting aspects of the analysis of A&S but have not identified the theoretical implications of equalizing consumption and income.

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  • Schmidt, Ulrich, 2014. "Risk preferences may be time preferences: A comment on Andreoni and Sprenger (2012)," Kiel Working Papers 1942, Kiel Institute for the World Economy (IfW Kiel).
    • Handle: RePEc:zbw:ifwkwp:1942
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    1. Cheung, Stephen L., 2013. "On the Elicitation of Time Preference under Conditions of Risk," Working Papers 2013-15, University of Sydney, School of Economics.
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    Cited by:

    1. Stephen L. Cheung, 2020. "Eliciting utility curvature in time preference," Experimental Economics, Springer;Economic Science Association, vol. 23(2), pages 493-525, June.
    2. Anujit Chakraborty & Evan M. Calford & Guidon Fenig & Yoram Halevy, 2017. "External and internal consistency of choices made in convex time budgets," Experimental Economics, Springer;Economic Science Association, vol. 20(3), pages 687-706, September.
    3. Cheung, Stephen L., 2016. "Recent developments in the experimental elicitation of time preference," Journal of Behavioral and Experimental Finance, Elsevier, vol. 11(C), pages 1-8.
    4. Cheung, Stephen L., 2016. "Recent developments in the experimental elicitation of time preference," Journal of Behavioral and Experimental Finance, Elsevier, vol. 11(C), pages 1-8.

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