Viewing the Future through a Warped Lens: Why Uncertainty Generates Hyperbolic Discounting

Details

Serval ID
serval:BIB_C38EBC8804A2
Type
Article: article from journal or magazin.
Collection
Publications
Title
Viewing the Future through a Warped Lens: Why Uncertainty Generates Hyperbolic Discounting
Journal
Journal of Risk and Uncertainty
Author(s)
Epper T., Fehr-Duda H., Bruhin A.
ISSN
0895-5646
Publication state
Published
Issued date
12/2011
Peer-reviewed
Oui
Volume
43
Number
3
Pages
169-203
Language
english
Abstract
A large body of experimental research has demonstrated that, on average, people violate the axioms of expected utility theory as well as of discounted utility theory. In particular, aggregate behavior is best characterized by probability distortions and hyperbolic discounting. But is it the same people who are prone to these behaviors? Based on an experiment with salient monetary incentives we demonstrate that there is a strong and significant relationship between greater departures from linear probability weighting and the degree of decreasing discount rates at the level of individual behavior. We argue that this relationship can be rationalized by the uncertainty inherent in any future event, linking discounting behavior directly to risk preferences. Consequently, decreasing discount rates may be generated by people's proneness to probability distortions.
Keywords
time preferences, risk preferences, hyperbolic discounting, probability weighting, institutionally generated uncertainty
Web of science
Create date
10/09/2012 10:59
Last modification date
20/08/2019 16:38
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