Comment on “Risk Preferences Are Not Time Preferences”: On the Elicitation of Time Preference under Conditions of Risk

2015 ◽  
Vol 105 (7) ◽  
pp. 2242-2260 ◽  
Author(s):  
Stephen L. Cheung
Keyword(s):  
Experimental Design ◽  
Utility Function ◽  
Time Preference ◽  
Time Budget ◽  
Risk Preferences ◽  
Utility Functions ◽  
Time Preferences ◽  
Price List

Andreoni and Sprenger (2012a, b) report evidence that distinct utility functions govern choices under certainty and risk. I investigate the robustness of this result to the experimental design. I find that the effect disappears completely when a multiple price list instrument is used instead of a convex time budget design. Alternatively, the effect is reduced by half when sooner and later payment risks are realized using a single lottery instead of two independent lotteries. The result is thus at least partially driven by intertemporal diversification, supporting an explanation in terms of concavity of the intertemporal, and not only atemporal, utility function. (JEL C91, D81, D91)

Comment on “Risk Preferences Are Not Time Preferences”: Separating Risk and Time Preference

2015 ◽  
Vol 105 (7) ◽  
pp. 2272-2286 ◽  
Author(s):  
Bin Miao ◽  
Songfa Zhong
Keyword(s):  
Time Preference ◽  
Choice Behavior ◽  
Risk Preferences ◽  
Risk Attitude ◽  
Utility Functions ◽  
Time Preferences ◽  
Experimental Setting ◽  
Experimental Findings ◽  
Intertemporal Decisions ◽  
Behavior Supports

Andreoni and Sprenger (2012a,b) observe that utility functions are distinct for risk and time preferences, and show that their findings are consistent with a preference for certainty. We revisit this question in an enriched experimental setting in which subjects make intertemporal decisions under different risk conditions. The observed choice behavior supports a separation between risk attitude and intertemporal substitution rather than a preference for certainty. We further show that several models, including Epstein and Zin (1989); Chew and Epstein (1990); and Halevy (2008) exhibit such a separation and can account for the overall experimental findings. (JEL C91, D81, D91)

The Performance of Time-Preference and Risk-Preference Measures in Surveys

2021 ◽  
Author(s):  
Joshua Tasoff ◽  
Wenjie Zhang
Keyword(s):  
Time Preference ◽  
Risk Preferences ◽  
Risk Preference ◽  
Time Preferences ◽  
Self Report ◽  
Data Set ◽  
Financial Decisions ◽  
Wide Range ◽  
Substantial Heterogeneity ◽  
Report Measure

Time preferences and risk preferences play an important role in a wide range of behavior, including financial decisions, entrepreneurship, and the proper incentivizing of agents. Numerous methods have been developed to measure these preferences hypothetically in surveys, but they have yielded inconsistent results. We analyze a panel data set in which subjects have collectively answered more than 400 surveys including 15 time-preference and 36 risk-preference elicitations. We evaluate the performance of these measures using the criteria of (1) ability to predict economically important behavior and (2) distinctness from other observables. We find substantial heterogeneity in the predictiveness of the measures. The best performing measure for time-preference is a titration method, in which a sequence of adaptive binary-choice questions narrows in on a subject’s indifference point, and for risk-preference it is a self-report measure of risk aversion. Using factor analysis, we find that time preferences are well explained by a single factor, but risk preferences load on multiple factors. However, the first factor loads almost entirely on self-reported risk-preference measures, and this factor explains much of the variation. The evidence can help inform researchers about which elicitation methods to include in their surveys. This paper was accepted by Yan Chen, decision analysis.

Power Law with Exponential Cut‐off Utility

Metamorphosis ◽  
2014 ◽  
Vol 13 (1) ◽  
pp. 26-32
Author(s):  
Afreen Arif H. ◽  
T.P.M. Pakkala
Keyword(s):  
Risk Aversion ◽  
Utility Function ◽  
Power Law ◽  
Risk Preferences ◽  
Portfolio Allocation ◽  
Utility Functions ◽  
Relative Risk Aversion ◽  
Optimal Solutions ◽  
New Class ◽  
Exponential Power

Most of the utility functions studied earlier concentrated on properties of risk aversion. In this article, the authors have introduced a new class of utility function called the Power Law with Exponential Cut-off (PLEC) utility function, which exhibits all the absolute and relative risk aversion and risk loving preferences of individuals, under various conditions. It generalises and encompasses other systems of utility functions like that of exponential power. Certain properties of this utility function are discussed. Sensitivity analysis exhibits different portfolio allocations for various risk preferences. The analysis also shows that arbitrary risk preferences may lead to biased risk response estimates. Performance of PLEC utility function in portfolio allocation problem is demonstrated through numerical examples. This is evaluated through optimal solutions.

scholarly journals Visual convex time preferences: Lab, field and high schools

2020 ◽  
Author(s):  
Pablo Branas-Garza ◽  
Benjamin Prissé
Keyword(s):  
High Schools ◽  
Time Budget ◽  
Time Preferences ◽  
Measuring Time ◽  
Price List ◽  
The Future ◽  
High Level

The original standard for measuring time preferences was Multiple Price List (MPL), where subjects are asked to choose between an amount of money in the present and a larger amount of money in the future. Convex Time Budget (CTB) was later introduced, allowing subjects to differentiallyallocate money between present and future. It improved precision of measurement but also increased the complexity of the task. In this paper we introduce the Visual Convex Time Preferences (VCTP), a new measure of time preferences synthesizing simplicity of MPL and precision of CTB. Results from the lab suggest that VCTP is robust and improves precision of time preferences measurement compared to the MPL. Same results are replicated in the field of Honduras, especially when the experiment is run with the help of enumerators. Experiments with teenagers show that younger population exhibit high level of inconsistency although older participants perform better.

scholarly journals Visual convex time preferences: Lab, field and high schools

2021 ◽  
Author(s):  
Pablo Branas-Garza ◽  
Benjamin Prissé
Keyword(s):  
High School ◽  
High Schools ◽  
Field Experiment ◽  
Time Budget ◽  
Time Preferences ◽  
Lab Experiment ◽  
Measuring Time ◽  
Price List ◽  
Task Time

Abstract We introduce the Visual Convex Time Preferences (VCTP) task, a new tool for measuring time preferences that synthesizes the simplicity of Multiple Price List (MPL) and the precision of Convex Time Budget (CTB) tasks. We evaluate VCTP in three environments: lab, field and high school. The lab experiment suggests that VCTP improves the precision of time preferences without increasing task time or decreasing subject consistency. The field experiment partially replicates the results, since subjects make little use of the additional precision. The high school experiment shows that younger populations find it difficult to perform both the MPL and the VCTP, but older teenagers use the advantage of VCTP at no cost. Overall, the results indicate that the task successfully measures time preferences but should be adapted to specific populations.

DECISION ANALYSIS WITH MULTIPLE OBJECTIVES IN A FRAMEWORK FOR EVALUATING IMPRECISION

2005 ◽  
Vol 13 (05) ◽  
pp. 495-509 ◽  
Author(s):  
ARON LARSSON ◽  
JIM JOHANSSON ◽  
LOVE EKENBERG ◽  
MATS DANIELSON
Keyword(s):  
Decision Tree ◽  
Utility Function ◽  
Evaluation Method ◽  
Convex Sets ◽  
Utility Functions ◽  
Probability Measures ◽  
Decisions Under Risk ◽  
Closed Intervals ◽  
Pros And Cons ◽  
Tree Evaluation

We present a decision tree evaluation method for analyzing multi-attribute decisions under risk, where information is numerically imprecise. The approach extends the use of additive and multiplicative utility functions for supporting evaluation of imprecise statements, relaxing requirements for precise estimates of decision parameters. Information is modeled in convex sets of utility and probability measures restricted by closed intervals. Evaluation is done relative to a set of rules, generalizing the concept of admissibility, computationally handled through optimization of aggregated utility functions. Pros and cons of two approaches, and tradeoffs in selecting a utility function, are discussed.

scholarly journals Comparing utility functions between risky and riskless choice in rhesus monkeys

2021 ◽  
Author(s):  
Philipe M. Bujold ◽  
Simone Ferrari-Toniolo ◽  
Leo Chi U Seak ◽  
Wolfram Schultz
Keyword(s):  
Utility Function ◽  
Utility Theory ◽  
Utility Maximization ◽  
Choice Behavior ◽  
Expected Utility Theory ◽  
Utility Functions ◽  
Random Utility Maximization ◽  
Risky Choices ◽  
Neuronal Mechanisms ◽  
Subjective Value

AbstractDecisions can be risky or riskless, depending on the outcomes of the choice. Expected Utility Theory describes risky choices as a utility maximization process: we choose the option with the highest subjective value (utility), which we compute considering both the option’s value and its associated risk. According to the random utility maximization framework, riskless choices could also be based on a utility measure. Neuronal mechanisms of utility-based choice may thus be common to both risky and riskless choices. This assumption would require the existence of a utility function that accounts for both risky and riskless decisions. Here, we investigated whether the choice behavior of macaque monkeys in riskless and risky decisions could be described by a common underlying utility function. We found that the utility functions elicited in the two choice scenarios were different from each other, even after taking into account the contribution of subjective probability weighting. Our results suggest that distinct utility representations exist for riskless and risky choices, which could reflect distinct neuronal representations of the utility quantities, or distinct brain mechanisms for risky and riskless choices. The different utility functions should be taken into account in neuronal investigations of utility-based choice.

Time Preferences for Health

2018 ◽  
Author(s):  
Marjon van der Pol ◽  
Alastair Irvine
Keyword(s):  
Time Preference ◽  
Time Preferences ◽  
Measuring Time ◽  
Health Domain ◽  
Individual Health ◽  
Elicitation Methods

The interest in eliciting time preferences for health has increased rapidly since the early 1990s. It has two main sources: a concern over the appropriate methods for taking timing into account in economics evaluations, and a desire to obtain a better understanding of individual health and healthcare behaviors. The literature on empirical time preferences for health has developed innovative elicitation methods in response to specific challenges that are due to the special nature of health. The health domain has also shown a willingness to explore a wider range of underlying models compared to the monetary domain. Consideration of time preferences for health raises a number of questions. Are time preferences for health similar to those for money? What are the additional challenges when measuring time preferences for health? How do individuals in time preference for health experiments make decisions? Is it possible or necessary to incentivize time preference for health experiments?

scholarly journals Efficiency, equity, and social rationality under uncertainty

2021 ◽  
Author(s):  
Kaname Miyagishima
Keyword(s):  
Simple Model ◽  
Social Welfare ◽  
Expected Utility ◽  
Risk Preferences ◽  
Utility Functions ◽  
Subjective Expected Utility ◽  
Risk Averse ◽  
Social Rationality ◽  
Certainty Equivalents ◽  
Ex Post

AbstractIn a simple model where agents’ monetary payoffs are uncertain, this paper examines the aggregation of subjective expected utility functions which are interpersonally noncomparable. A maximin social welfare criterion is derived from axioms of efficiency, ex post equity, and social rationality, combined with the independence of beliefs and risk preferences in riskless situations (Chambers and Echenique in Games Econ Behav 76:582–595, 2012). The criterion compares allocations by the values of the prospects composed of the statewise minimum payoffs evaluated by the certainty equivalents. Because of this construction, the criterion is egalitarian and risk averse.

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