are impatient farmers more risk averse evidence from a lab in the field experiment in rural uganda based on data from a field experiment in rural uganda we show that impatient farmers are more risk averse than patient farmers we relied on a simplified version of the convex time budget ctb method to elicit farmers time preferences and on an independent method for eliciting their risk preferences we report two important findings first we show that our simplified ctb method applied to farmers from uganda replicates the key findings of andreoni and sprenger s lab experiments that involved student subjects second we establish the existence of a negative correlation between risk tolerance and impatience based on two independent measures

risk preferences at different time periods an experimental investigation intertemporal decision making under risk involves two dimensions time preferences and risk preferences this paper focuses on the impact of time on risk preferences independent of the intertemporal trade off of outcomes i e time preferences it reports the results of an experimental study that examines how delayed resolution and payment of risky options influence individual choice we used a simple experimental design based on the comparison of two outcome monetary lotteries with the same delay raw data clearly reveal that subjects become more risk tolerant for delayed lotteries assuming a prospect theory like model under risk we analyze the impact of time on utility and decision weights independent of time preferences we show that the subjective treatment of outcomes i e utility is not significantly affected by time in fact the impact of time is completely absorbed by the probability weighting function the effect of time on risk preferences was found to generate probabilistic optimism resulting in a higher risk tolerance for delayed lotteries this paper was accepted by teck ho decision analysis

a rank dependent utility model of uncertain lifetime abstract in a continuous time life cycle model of consumption with an uncertain lifetime we use a non parametric specification of rank dependent utility theory to characterize the preferences of the agent we prove that time consistency holds for a subclass of probability weighting function providing the foundation for a constant rate of time preference that interacts multiplicatively with the hazard rate instead of additively as in the yaari 1965 seminal model we calibrate both models to explain the hump in the life cycle consumption and show that the multiplicative model is more robust

risk preferences are not time preferences balancing on a budget line comment in a recent experimental study of intertemporal risky decision making andreoni and sprenger 2012 find that subjects exhibit a preference for intertemporal diversification which is inconsistent with discounted expected utility theory it was claimed that their results are also at odds with models involving probability weighting such as rank dependent utility and cumulative prospect theory here we demonstrate however that rank dependent probability weighting explains intertemporal diversification if decision makers care about portfolio risk moreover we provide a unified account of all of andreoni and sprenger s key findings

the ellsberg paradox and risk aversion an anticipated utility approach the paper describes a decision process under which it is rational to prefer a lottery with known probabilities to a similar ambiguous lottery where the decision maker does not know the exact values of the probabilities the ellsberg paradox this is done by modeling ambiguous lotteries as two stage lotteries by assuming the independence axiom without the reduction of compound lotteries axiom and by using the anticipated utility functional this paper also gives conditions under which less ambiguity is preferred and presents some comparative statics analysis as well as some inter personal comparisons finally it proves that within the anticipated utility framework risk and ambiguity are almost identical copyright 1987 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

rationalizing hyperbolic discounting abstract we show that if agents are uncertain about their discount rates it may be rational for them to discount the distant future hyperbolically rather than exponentially our findings thus may rationalize a common observation in experimental work which indicates that people discount the future at hyperbolic rates we show that under some assumptions uncertainty over hazard rates may lead to non constant discounting but not imply dynamically inconsistent behavior under other assumptions uncertainty over discount rates can lead to dynamically inconsistent behavior like violating planned consumption profiles by bringing consumption forward

working over time dynamic inconsistency in real effort tasks experimental tests of dynamically inconsistent time preferences have largely relied on choices over time dated monetary rewards several recent studies have failed to nd the standard patterns of present bias however such monetary studies contain oftendiscussed confounds in this paper we sidestep these confounds and investigate choices over consumption real eort in a longitudinal experiment we pair this eort study with a companion monetary discounting study we conrm very limited time inconsistency in monetary choices however subjects show considerably more present bias in eort furthermore present bias in the allocation of work has predictive power for demand of a meaningfully binding commitment device therefore our ndings validate a key implication of models of dynamic inconsistency with corresponding policy implications

quasi stationary cardinal utility and present bias abstract this note gives an axiomatic foundation for utility exhibiting quasi geometric discounting in addition it introduces a wider class of utility functions satisfying weakened stationarity called quasi stationary utility both are established as von neumann morgenstern utility indices in a model of risk preference

social motives vs social influence an experiment on interdependent time preferences we report experimental evidence on the effects of social preferences on intertemporal decisions to this aim we design an intertemporal dictator game to test whether dictators modify their discounting behavior when their own decision is imposed on their matched recipients we run four different treatments to identify the effect of payoffs externalities from those related to information and beliefs our descriptive statistics show that heterogeneous social time preferences and information about others time preferences are significant determinants of choices dictators display a marked propensity to account for the intertemporal preferences of recipients both in the presence of externalities social motives and or when they know about the decisions of their matched partners social influence we also perform a structural estimation exercise to control for heterogeneity in risk attitudes as for individual behavior our estimates confirm previous studies in that high risk aversion is associated with low discounting as for social behavior we find that social motives outweigh social influence especially when we restrict our sample to pairs of dictators and recipients who satisfy minimal consistency conditions

a theory of intergenerational altruism modeling intergenerational altruism is crucial to evaluate the long term consequences of current decisions and requires a set of principles guiding such altruism we axiomatically develop a theory of pure direct altruism altruism is pure if it concerns the total utility rather than the mere consumption utility of future generations and direct if it directly incorporates the utility of all future generations our axioms deliver a new class of altruistic forward looking preferences whose weight put on the consumption of a future generation generally depends on the consumption of other generations the only preferences lacking this dependence correspond to the quasi hyperbolic discounting model which our theory characterizes our approach provides a framework to analyze welfare in the presence of altruistic preferences and addresses technical challenges stemming from the interdependent nature of such preferences

dynamically consistent beliefs must be bayesian abstract experimental evidence such as the ellsberg paradox contradicts the savage model of decision making under uncertainty since the representation of beliefs underlying preferces by a single probability measure leaves no room for the degree of imprecision in information to affect decisions proceeding axiomatically this paper shows that the existence of a bayesain prior is implied even if savage s sure thing principle is deleted if preferences i are based on beliefs and ii admit dynamically consistent updating in response to new information the result raises questions about the appeal of models of preference that feature a separation of tastes and beliefs journal of economic literature classification number d81

time tradeoff sequences for analyzing discounting and time inconsistency this paper introduces time tradeoff tto sequences as a general tool to analyze intertemporal choice we give several applications for empirical purposes we can measure discount functions without requiring any measurement of or assumption about utility we can quantitatively measure time inconsistencies and simplify their qualitative tests tto sequences can be administered and analyzed very easily using only pencil and paper for theoretical purposes we use tto sequences to axiomatize quasi hyperbolic discount functions we demonstrate the feasibility of measuring tto sequences in an experiment in which we tested the axiomatizations our findings suggest rejections of several currently popular discount functions and call for the development of new ones it is especially desirable that such discount functions can accommodate increasing impatience

is there one unifying concept of utility an experimental comparison of utility under risk and utility over time the nature of utility is controversial whereas decision theory commonly assumes that utility is context specific applied and empirical decision analysis typically assumes one unifying concept of utility applicable to all decision problems this controversy has hardly been addressed empirically because of the absence of methods to measure utility outside the context of risk we introduce a method to measure utility over time and compare utility under risk and utility over time we distinguish between gains and losses and also measure loss aversion in two experiments we found that utility under risk and utility over time differed and were uncorrelated utility under risk was more curved than utility over time subjects were loss averse both for risk and for time but loss aversion was more pronounced for risk loss aversion over risk and time were uncorrelated this suggests that loss aversion although important in both decision contexts is volatile and subject to framing

timing and self control the dual self model of self control with one period lived short run selves is excessively sensitive to the timing of shocks and to the interpolation of additional no action time periods in between the dates when decisions are made we show that when short run selves have a random length of time this excess sensitivity goes away we consider both linear and convex cost of self control models illustrating the theory through a series of examples we examine when opportunities to consume will be avoided or delayed we consider the way in which the marginal interest declines with delay and we examine how preference reversals depend on the timing of information to accommodate the combination of short time periods and convex costs of self control we extend the model to treat willpower as a cognitive resource that is limited in the short run

a simple explanation of some key time preference anomalies individual time discounting behaviour experimentally exhibits important anomalies that are inconsistent with the standard discounted utility model these include the time preference reversal characteristic of hyperbolic discounting the magnitude effect and the extreme sign effect i propose a simple explanation of discounting that accounts for these three anomalies simultaneously within the context of the expected utility model with uncertainty risk aversion and preference for precautionary saving experimentalement le comportement individuel dans l escompte du temps revele des anomalies importantes qui cadrent mal avec le modele standard de l utilite anticipee ce sont par exemple le renversement de la preference temporelle qui caracterise le processus d escompte hyperbolique ou l effet de magnitude ou l effet de signe extr me on propose une explication simple du comportement d escompte qui explique simultanement ces trois anomalies dans le cadre du modele d utilite anticipee en presence d incertitude d aversion au risque et de preference pour l epargne de precaution

anomalies in intertemporal choice evidence and an interpretation research on decision making under uncertainly has been strongly influenced by the documentation of numerous expected utility eu anomalies behaviors that violate the expected utility axioms the relative lack of progress on the closely related topic of intertemporal choice is partly due to the absence of an analogous set of discounted utility du anomalies we enumerate a set of du anomalies analogous to the eu anomalies and propose a model that accounts for the anomalies as well as other intertemporal choice phenomena incompatible with du we discuss implications for savings behavior estimation of discount rates and choice framing effects

time inconsistency and welfare program participation evidence from the nlsy we empirically implement a dynamic structural model of labor supply and welfare program participation for agents with potentially time inconsistent preferences using panel data on the choices of single women with children from the nlsy 1979 we provide estimates of the degree of time inconsistency and of its influence on the welfare take up decision with these estimates we conduct counterfactual experiments to quantify the utility loss stemming from the inability to commit to future decisions and the potential utility gains from commitment mechanisms such as welfare time limits and work requirements

strotz meets allais diminishing impatience and the certainty effect comment halevy 2008 states the equivalence between diminishing impatience i e quasi hyperbolic discounting and the common ratio effect the present paper shows that one way of the equivalence is false and shows the correct and general relationships diminishing impatience is equivalent to the certainty effect and that strong diminishing impatience i e hyperbolic discounting is equivalent to the common ratio effect

uncertainty and hyperbolic discounting we propose an evolutionary explanation for the pattern of intertemporal preference reversals often ascribed to hyperbolic discounting we take the view that preferences manifested for example in urges cravings and inclinations are the outcome of evolutionary forces and so will induce animals or humans to make survival maximizing choices in typical decision problems we show that if the typical problem involves payoffs whose realization times are uncertain then optimal preferences give rise to relatively patient behavior when the time horizon is long but induce a switch to impatience when the horizon grows short such reversals do not entail dynamic inconsistency in typical decision problems behavior there is optimal however if a decision maker is confronted with a choice for which the realization time uncertainty falls outside the evolutionary norm her preferences may well prompt her to behave inconsistently we argue that if such a choice problem recurs her evolutionarily endowed aability to learn will lead her to make self commitments against these urges this abstract was borrowed from another version of this item

some remarks on quiggin s anticipated utility abstract this remark proves that quiggin s anticipated utility function may solve the allais paradox and the common ratio effect for some generalizations of these it is needed to assume that the decision weight function is concave

optimal policy for a two stage assembly system under random demand this paper considers an inventory system in which an end product is assembled from two components each of which is ordered from an external supplier only the end product has final demand which is assumed to be random using the functional equation approach of dynamic programming we characterize the forms of both the optimal order policy for the components and the optimal assembly policy of the end product for a multiperiod problem of arbitrary but finite length we believe that this work represents the only exact analysis of an mrp type assembly system when demand is stochastic

integrated safety stock optimization for multiple sourced stockpoints facing variable demand and lead time abstract the safety stock placement problem of a multi stage supply chain comprising multiple sourced stockpoints is addressed in this paper each stockpoint faces variability in its downstream demand and suppliers lead time the maximum among these suppliers lead time is determined by employing concepts of order statistics it is required to find the fill rate and safety stocks at each stockpoint that leads to satisfying the end customer service level at minimum safety stock placement cost hence the fill rates and the safety amounts are decided from a global supply chain perspective two models are proposed a decentralized safety stock placement model and a centralized consolidation model the decentralized model finds the safety amounts at each stockpoint required to face its underlying lead time demand variability the consolidation model finds the consolidated safety amounts that will be kept in the relevant consolidation center at each stage a benders decomposition technique is developed to handle the nonlinearity and binary restrictions involved in the safety stock consolidation model strategies proposed by the consolidation model achieve 45 2 62 reduction in safety amounts that results in a cost savings ranging between 22 2 44 2 as compared to the strategies proposed by the decentralized model

contract design and self control with asymmetric information i introduction growing evidence from both experimental and field studies supports the view that people s behavior is often time inconsistent that is people are more impatient in the short run than in the long run laibson 1997 phelps and poliak 1968 such time preference is characterized by hyperbolic discounting where the discount rate declines with time into the future see loewenstein and prelec 1992 for a summary of the empirical evidence of such discounting some scholars argue that hyperbolic discounting even has a biological basis bateson and kacelnik 1996 robson 2001 others try to provide a rationale for hyperbolic discounting azfar 1999 halevy 2008 economists have noticed that such a time inconsistent preference has a profound impact on an individual s economic behavior and consequently on the way contracts will in equilibrium be designed a seminal paper by dellavigna and malmendier 2004 henceforth dm provides a framework to study a situation where a time consistent firm contracts with a time inconsistent consumer strikingly they find that for investment goods 1 by charging a per usage price below marginal cost but a higher entrance fee 2 the firm obtains the same profit as in the case where a consumer has no short run impatience as long as the consumer is sophisticated that is he is fully aware of his time inconsistency problem these findings are based on the assumption that the firm has complete information on the consumer s benefits in practice however a consumer may also hold private information on his own willingness to pay consumption benefit by introducing asymmetric information in the dimension of willingness to pay we find significant changes in the properties of the optimal contract the below marginal cost pricing rule may fail for consumers with low willingness to pay due to an upward distortion on the per usage price because of the trade off between efficiency and information rent extraction for investment goods evidence from field studies supports the co existence of both below and above marginal cost pricing see dellavigna 2009 dellavigna and malmendier 2006 use data from three u s health clubs which offer a choice between two contracts a monthly one with a lump sum fee l around 80 and no payment obviously below marginal cost per visit and a pay per visit contract with a price p of 10 probably above marginal cost their finding of consumer behavior is not consistent with the standard intuition of rationality the subscribers with the monthly contract go to the clubs rarely on average they pay 17 per visit although they could pay 10 per visit with the pay per visit contract the authors explanation is that these consumers are naive that is they are over confident toward future self control however in our article even when facing a population of sophisticated consumers as long as there exists asymmetric information on consumption benefit the firm may offer both below and above marginal cost pricing contracts since the per usage price can serve as a screening device which elicits consumers private information a sophisticated consumer may also buy the annual monthly contract with few attendances especially when he has a high consumption benefit in other words the long run self purchases an expensive commitment device to reduce the marginal cost of a visit from 10 to 0 and induce the impatient short run self to exercise more often more importantly unlike the complete information scenario with sophisticated consumers the firm s profit is no longer unaffected by the consumer s short run impatience interestingly the firm s profit is not monotonic in the consumer s short run impatience when the consumer s self control problem is not very severe that is the consumer is sufficiently patient in the short run the upward distortion on the per usage price prevents the first best discount on it so the short run impatience negatively impacts the firm s profit

decision making over time and under uncertainty a common approach this paper considers a number of parallels between risky and intertemporal choice we begin by demonstrating a one to one correspondence between the behavioral violations of the respective normative theories for the two domains i e expected utility and discounted utility models we argue that such violations or preference reversals are broadly consistent with three propositions about the weight that an attribute receives in both types of multiattribute choice specifically it appears that 1 if we add a constant to all values of an attribute then that attribute becomes less important 2 if we proportionately increase all values of an attribute or if we change the sign of an attribute from positive to negative then that attribute becomes more important the generality of these propositions as well as the constraints they would impose on separable representations of multiattribute preferences is discussed

safety stock optimization in multi stage inventory systems abstract determining appropriate safety stocks in stochastic multi state production distribution systems is a very difficult task approaches for optimal determination of safety stocks regarding cost objectives and service level restrictions which are suitable for practical applications can only be found for a very limited class of multi stage inventory problems like problems of strictly serial structure or special two stage production distribution systems in this paper a procedure for determining the optimal size and distribution of safety stocks in a general serial or divergent production distribution process ruled by a base stock control policy is presented this approach especially allows for taking into account the impact of end item demand correlation on distribution and size of safety stocks by using risk pooling effects in divergent systems a powerful dynamic programming algorithm for solving the safety stock optimization problem is developed and impacts of problem parameter variations on the optimal solution are discussed

dynamic consistency revelations in auctions and the structure of preferences analyzing the optimal bidding behaviour in ascending bid auctions and second price sealed bid auctions with independent private values we show that expected utility maximizing behaviour is equivalent to a dynamically consistent bidding in ascending bid auctions b the equivalence of the optimal bids in ascending bid auctions and in second price sealed bid auctions c bidding the value of the object in second price sealed bid auctions in addition the optimal bid in ascending bid auctions equals the value of the object if and only if the bidder s preferences on lotteries are both quasi concave and quasi convex

making book against oneself the independence axiom and nonlinear utility theory an individual with known preferences over lotteries can be led to accept random wealth distributions different from his initial endowment by a sequential process in which some uncertainty is resolved and he is offered a new lottery in place of the remaining uncertainty this paper examines the restrictions that can be placed on an individual s preferences by axioms that stipulate that such a process not be able to generate a new wealth distribution that is prima facie inferior to the original the relationship of these axioms to the independence axiom of von neumann and morgenstern and to the quasi convexity of preferences in the wealth distribution are explored

strotz meets allais diminishing impatience and the certainty effect abstract decision makers tend to exhibit a higher degree of impatience when considering a delay to an immediate reward than when contemplating an identical delay to an equal future reward this work argues that diminishing impatience originates from the distinction between the certain present and the risky future a simple functional representation of preferences exhibiting time inconsistency when the future is uncertain is derived experimental evidence which is inconsistent with other formulations that account for diminishing impatience supports the proposed approach the new theory uncovers a tight relation between diminishing impatience and well known behavioral regularities in choice under risk and uncertainty jel d12 d81

comment on risk preferences are not time preferences separating risk and time preference 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 risk and time preferences are the cornerstones of economic analyses regarding risk preference expected utility eu has been the predominant theory in which the curvature of the utility index captures risk attitude regarding time preference discounted utility is the most widely used model in which the curvature of the utility index captures intertemporal substitution when risk and time are intertwined integrating the two theories yields discounted expected utility deu which evaluates a contingent consumption plan c c c 3 as follows

the effect of commonality on safety stock in a simple inventory model we examine the effects of component commonality on optimal safety stock levels in a two product two level inventory model the criterion is to minimize system safety stock subject to a service level constraint although our model is specialized its analysis provides insights not available in other multilevel inventory models

discounting behavior a reconsideration we re evaluate the theory experimental design and econometrics behind claims that individuals exhibit non constant discounting behavior theory points to the importance of controlling for the non linearity of the utility function of individuals since the discount rate is defined over time dated utility flows and not flows of money it also points to a menagerie of functional forms to characterize different types of non constant discounting behavior the implied experimental design calls for individuals to undertake several tasks to allow us to identify these models and to several treatments such as multiple horizons and the effect of allowing for a front end delay on earlier payments the implied econometrics calls for structural estimation of the theoretical models allowing for joint estimation of utility functions and discounting functions using data collected from a representative sample of 413 adult danes in 2009 we draw striking conclusions assuming an exponential discounting model we estimate discount rates to be 5 6 on average this is significantly lower than all previous estimates using controlled experiments we also find no evidence to support quasi hyperbolic discounting or fixed cost discounting and only modest evidence to support other specifications of non constant discounting furthermore the evidence for non constant discounting while statistically significant is not economically significant in terms of the size of the estimated discount rates we undertake extensive robustness checks on these findings including a detailed review of the previous comparable literature

intergenerational altruism with future bias abstract we show that standard preferences of altruistic overlapping generations exhibit future bias which involves preference reversals associated with increasing impatience this underlies a conflict of interest between successive generations we explore the implications of this conflict for intergenerational redistribution when there is a sequence of utilitarian governments representing living generations and choosing policies independently over time we argue that future bias creates incentives to legislate and sustain a pay as you go pension system which every government views as a self enforcing commitment mechanism to increase future old age transfers

hyperbolic discounting a recursive formulation and an application to economic growth abstract we axiomatize decreasing impatience di in a discrete time setting as originally discussed by prelec and formulate a class of recursively defined discounting functions that conform to di the recursive formulation is used to analyze the ramsey growth problem using dynamic programming techniques

temptation biased preferences for risk and time abstract we introduce a model of temptation biased preferences that generalizes quasi hyperbolic discounting and quasi rank dependent probability weighting the model explains empirically observed interactions between risk and time preferences and empirically observed correlations between expected utility violations and discounted utility violations

discount rates inferred from decisions an experimental study two hundred and four students of economics and finance participated in an intertemporal choice experiment which manipulated three dimensions in a 4 4 4 factorial design scenario postponing a receipt postponing a payment expediting a receipt expediting a payment time delay 0 5 1 2 and 4 years and size of cashflow 40 200 1000 and 5000 individual discount rates were inferred from the responses and then used to test competitively four hypotheses regarding the behavior of discount rates the classical hypothesis asserting that the discount rate is uniform across scenarios time delays and sums of cashflow was flatly rejected a market segmentation approach was found lacking the results support an implicit risk hypothesis according to which delayed consequences are associated with an implicit risk value and an added compensation hypothesis which asserts that individuals require compensation for a change in their financial position

developments in non expected utility theory the hunt for a descriptive theory of choice under risk this article reviews recent developments in the economic theory of individual decision making under risk since the 1950s it has been known that individual choices violate the standard model of expected utility in predictable ways considerable research effort has now been devoted to the project of developing a superior descriptive model following an overview of non expected utility theories which distinguishes between conventional and non conventional approaches the paper seeks to assess these alternative models in terms of empirical success using laboratory and field data and theoretical usefulness the closing sections reflect on some new directions emerging in this literature

ambiguity and the corporation group disagreement and underinvestment abstract we study a dynamic corporate investment problem where decisions have to be made collectively by a group of agents holding heterogeneous beliefs and adhering to a utilitarian governance mechanism in which each agent has a given influence in the decision in this setting we show that i group decisions are typically dynamically inconsistent ii dynamic inconsistency leads to inefficient underinvestment and iii the ability to trade securities among insiders or with outsiders may restore efficient investment decisions but it may in some cases lead to inefficient overinvestment our theory can help explain the empirical evidence on the effect of diversity of groups such as corporate boards on firms outcomes and more generally on the difference between group and individual behavior

self control and the theory of consumption to study the behavior of agents who are susceptible to temptation in infinite horizon consumption problems under uncertainty we define and characterize dynamic self control dsc preferences dsc preferences are recursive and separable in economies with dsc agents equilibria exist but may be inefficient in such equilibria steady state consumption is independent of initial endowments and increases in self control increasing the preference for commitment while keeping self control constant increases the equity premium removing nonbinding constraints changes equilibrium allocations and prices debt contracts can be sustained even if the only feasible punishment for default is the termination of the contract

choice under uncertainty problems solved and unsolved ffifteen years ago the theory of choice under uncertainty could be considered one of the success stories of economic analysis it rested on solid axiomatic foundations it had seen important breakthroughs in the analytics of risk risk aversion and their applications to economic issues and it stood ready to provide the theoretical underpinnings for the newly emerging information revolution in economics 1 today choice under uncertainty is a field in flux the standard theory is being challenged on several grounds from both within and outside economics the nature of these challenges and of our profession s responses to them is the topic of this paper

estimating time preferences from convex budgets experimentally elicited discount rates are frequently higher than what seems reasonable for economic decision making such high rates are often attributed to present biased discounting a well known bias of standard measurements is the assumption of linear consumption utility attempting to correct this bias using measures of risk aversion to identify concavity researchers find reasonable discounting but at the cost of exceptionally high utility function curvature we present a new methodology for identifying time preferences both discounting and curvature from simple allocation decisions we find reasonable levels of both discounting and curvature and surprisingly dynamically consistent time preferences jel c91 d12 d81 understanding and estimating time preferences is obviously of great importance to economists marketers and policy makers consumers decide how much to invest in savings education real estate and life insurance how much to diet exercise and smoke whether to marry when to have children and what to leave in their wills while there has been substantial research estimating time preferences using aggregate consumption data 1 the bulk of the effort has occurred in laboratory environments 2 among the many laboratory techniques employed recent studies have favored multiple price lists mpl with monetary payments 3 with mpls individuals are asked multiple times to choose between smaller payment amounts closer to the present and larger amounts further into the future the interest rate increases monotonically in a price list such that the point where an individual switches from preferring sooner payments to later payments carries interval

transaction costs the opportunity cost of time and procrastination in charitable giving abstract we conduct a laboratory experiment to study whether giving people more time to donate to charity reduces donations people may intend to donate but because of the transaction costs of doing so postpone making the payment until they are less busy and having postponed making the donation once keep postponing we conjecture that transaction costs will have a greater effect on donations if the solicitation is received when the opportunity cost of time is high we find evidence of a transaction cost reducing donations with the size of this effect depending on the opportunity cost of time but no statistically significant evidence that giving people more time to donate increases procrastination and thus reduces donations

time consistency stationarity and time invariance a sequence of experiments documents static and dynamic preference reversals between sooner smaller and later larger rewards when the sooner reward could be immediate the theoretically motivated design permits separate identification of time consistent stationary a ndtime invariant choices at least half of the subjects are time consistent but only three quarters of them exhibit stationary choices about half of subjects with time inconsistent choices have stationary preferences these results chal lenge the view that present bias preferences are the main source of time inconsistent choices the past twenty years have seen a surge of interest in time inconsistent preferences mostly this has been motivated by psychological experiments and introspection that have suggested the existence of present bias a decision maker prefers smaller immediate reward to a larger delayed reward but when she is asked about her preferences between these two alternatives when both are equally shifted into the future her preferences are reversed although there is no inconsistency per se in her answers this behavior has been taken to suggest that when the decision maker will be asked to update her choices in the future she will generally deviate from her ex ante plans our goal in the present study is to perform a dynamic preference reversal experiment as such one is required to extend the standard framework of pref erences over temporal payments to a dated collection of such preferences this extension allows us to formally define three distinct properties stationarity im plies that ranking of temporal payments depends only on the time distance and payment distance between the alternatives time invariance assumes that the decision maker evaluates each temporal payment relative to the evaluation pe

lessons from a behavioral economics success story comment on theory and experiment what are the questions among the many challenges that smith forthcoming details one that stands out is that theory and experiments face an incompatibility in the following sense theorists propose models which implicitly assume that the situation being modeled is divorced from everything else the individual might encounter either in the past or in the future in essence when they describe the game they preclude consideration of anything outside of the rules experimentalists on the other hand cannot make this implicit assumption while they have taken great pains to construct experiments that reflect as closely as possible the games described by theorists and often these experimental procedures are exceedingly clever they cannot remove subjects pasts or futures consequently economic experiments can never test only the theory they are designed to test instead they must test the theory in conjunction with all of the social cultural and historical baggage that subjects bring with them smith of course is right and his paper provides a call for new research to address this problem there are several directions that this researchmight go one is for experimental economists to somehow refine their procedures to isolate the laboratory from the outside world this after all is the technique used in the natural sciences but one can questionwhether this can ever be achieved for the social sciences an alternative direction is for theorists to write models that do not isolate rational actors from the rest of the world where the first direction lets theorists hold fast and expect experimentalists to adjust the second direction does the opposite something between these two is probably the right answer and indeed such a coordinated approach in which theorists address newmodeling questions and experimentalists change their approach to testing theoretical models was successful in a different part of economics the study of behavior toward risk my purpose here is to drawon the lessons from this successful research agenda and use them to develop a newdirection for experimental work on games

risk preferences are not time preferences risk and time are intertwined the present is known while the future is inherently risky this is problematic when studying time prefer ences since uncontrolled risk can generate apparently present biased behavior we systematically manipulate risk in an intertemporal choice experiment discounted expected utility performs well with risk but when certainty is added common ratio predictions fail sharply the data cannot be explained by prospect theory hyperbolic discounting or preferences for resolution of uncertainty but seem consistent with a direct preference for certainty the data suggest strongly a difference between risk and time preferences jel c91 d81 d91 understanding individual decision making under risk and over time are two foundations of economic analysis 1 in both areas there has been research to suggest that standard models of expected utility eu and exponential discounting are flawed or incomplete regarding time experimental research has uncovered evidence of a present bias or hyperbolic discounting frederick loewenstein and o donoghue 2002 regarding risk there are number of well documented departures from eu such as the allais 1953 common consequence and common ratio paradoxes an organizing principle behind expected utility violations is that they seem to arise as so called boundary effects where certainty and uncertainty are combined camerer 1992 harless and camerer 1994 and starmer 2000 indicate that violations of expected utility are notably less prevalent when all choices are uncertain this observation is especially interesting when considering decisions about risk taking over time in particular certainty and uncertainty are combined in intertemporal decisions the present is known and certain while the future is inherently risky this observation is problematic if one intends to study time preference in isolation from

uncertain lifetime and intertemporal choice risk aversion as a rationale for time discounting this article makes explicit the links between preferences over lotteries on length of life and intertemporal choice it shows that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to length of life relaxing such an assumption leads us to develop a more general formulation of lifetime utility in which time discounting is directly related to preferences over length of life exponential and hyperbolic discounting are found to result in a first approximation from constant and hyperbolic risk aversion with respect to length of life

risk and preference reversals in intertemporal choice abstract this paper argues that observations of non stationary choice behavior need not necessarily imply specific properties of the individual s discount function as we show the observed preference reversals in intertemporal choice are consistent with constant discounting and can alternatively be explained by decreasing absolute risk aversion together with the individual s risk perception this risk may concern the size of the actual outcome or the endowment consumption stream to which the outcome is added both types of uncertainty naturally appear in the context of intertemporal choice we show how relative degrees of changes in risk over time can determine choices

the law of one price evidence from the transitional economy of china abstract this paper applies the recently developed econometric methods of panel unit root tests and nonlinear mean reversion to investigate price convergence in china the largest transitional economy in the world we find that prices did converge to the law of one price in china for an overwhelming majority of goods and services based on a large panel data set the finding sheds light on the extent of the market economy in china and casts doubt on young s proposition that the economic reform has led to the fragmentation of chinese domestic markets