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The Relationship between Time and Risk Preferences: Hyperbolic Discounting in Nonlinear Probability Weighting and Financial Decision Making

Applicant Schubert Renate
Number 120705
Funding scheme Project funding
Research institution Institut für Wirtschaftsforschung ETH-Zürich
Institution of higher education ETH Zurich - ETHZ
Main discipline Economics
Start/End 01.08.2008 - 31.12.2010
Approved amount 290'279.00
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Keywords (6)

Decision under Risk; Intertemporal Choice; Laboratory Experiments; Experimental economics; risk taking behavior; time discounting

Lay Summary (English)

Lay summary
The predictions of economic theory and the resulting policy implications are decisively shaped by the underlying assumptions on people’s risk and time preferences. Different assumptions on preferences may be associated with radically different claims about the functioning of institutions and markets and, as a consequence, may lead to fundamentally different policy prescriptions. Therefore, applied economic models need to be based on sound empirical evidence regarding the nature and the distribution of preferences. It is the objective of this project to provide a clean and parsimonious characterization of the nature and the distribution of time and risk preferences that takes into account potentially important inter- dependencies between these preference categories. The results of this project are likely to provide an important basis for future work in applied economics,because they help economists to make sound assumptions on preferences and may shift economists’ perspective from “Which preference model should we use?” to “What mix of preference models should we use?” and “What are the proportions of people belonging to each distinct preference type?”.
Direct link to Lay Summary Last update: 21.02.2013

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