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Time Lotteries and Stochastic Impatience

Author

Listed:
  • Patrick DeJarnette

    (Department of Economics, National Taiwan University)

  • David Dillenberger

    (Department of Economics, University of Pennsylvania)

  • Daniel Gottlieb

    (Department of Economics, Washington University in St. Louis)

  • Pietro Ortoleva

    (Department of Economics, Princeton University)

Abstract
We study preferences over lotteries that pay a xed prize at an uncertain future date: what we call time lotteries. The standard model of risk and time preferences, Expected Discounted Utility, implies that individuals must be risk seeking towards such lotteries (RSTL). In contrast, we show experimentally that almost all subjects violate this property. Our main contributions are theoretical. First, we show that risk aversion over time lotteries can be captured by a generalization of Expected Discounted Utility that is obtained by keeping the behavioral postulates of Discounted Utility and Expected Utility. Second, we introduce a new property termed Stochastic Impatience, a risky counterpart of standard Impatience, and show that not only the model above, but also substantial generalizations that allow for non-Expected Utility and non-exponential discounting, cannot jointly accommodate it and even a single instance of risk aversion over time lotteries (or, equivalently, any violation of RSTL), showing a fundamental tension between the two.

Suggested Citation

  • Patrick DeJarnette & David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2014. "Time Lotteries and Stochastic Impatience," PIER Working Paper Archive 18-021, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 13 Jun 2018.
  • Handle: RePEc:pen:papers:18-021
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    More about this item

    Keywords

    Expected Discounted Utility; Separation of Risk and Time preferences; Time Lotteries; Stochastic Impatience;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • 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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