CeDEx Seminar - Mohammed Abdellaoui (HEC Paris)

Location
A41 Sir Clive Granger Building
Date(s)
Wednesday 7th December 2016 (14:00-15:00)
Description

Take your Chance or Take your Time: On the Impact of Risk on Time Discounting

Abstract: We report the results of an experimental investigation using a novel elicitation method for discounting that explicitly recognizes the uncertain nature of future outcomes. By trading off the probability of obtaining a prize now against a time delay, this method allows us to access the discount function nonparametrically under discounted expected utility (DEU). We then introduce a generalization of DEU adapted to our “time-risk” setup, which allows for a distinction between intertemporal substitution and risky utility and which accounts for anomalies regarding both discounted utility and expected utility. We show that, under DEU, time discounting is a direct measure of uncertainty regarding future outcomes. We find discounting obtained in our time-risk environement to systematically differ from discounting obtained in a riskless setup. The discrepancy only disappears once we correct not only for differences in utility but also for nonlinear probability weighting, taking into account the inherent riskiness of the future.

 

Centre for Decision Research and Experimental Economics

Sir Clive Granger Building
University of Nottingham
University Park
Nottingham, NG7 2RD

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