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Eliciting utility curvature and time preference
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In this paper, the curvature of utility elicited directly from choices over time is found to be significantly concave, but far closer to linear than that elicited under risk, and the effect of correcting discount rates for this curvature is modest.Abstract:
In both standard and behavioral theory, as well as experimental procedures to elicit time preference, it is commonly assumed that a single utility function is used to evaluate payoffs both under risk and over time. I introduce a novel experimental design to examine this assumption, by transposing the well-known Holt-Laury risk preference experiment from state-payoff space into time-dated payoff space. I find that the curvature of utility elicited directly from choices over time is significantly concave, but far closer to linear than utility elicited under risk. As a result, the effect of correcting discount rates for this curvature is modest.read more
Citations
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Looking ahead: Subjective time perception and individual discounting
TL;DR: The authors disentangle hyperbolic discounting from subjective time perception using experimental data from incentive-compatible tests to measure time preferences, and a set of experimental tasks to measure the time perception.
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Risk preferences impose a hidden distortion on measures of choice impulsivity.
TL;DR: A model is advanced which, when applied to standard choice tasks typically used in psychology and neuroscience, provides both a better fit to the data and successfully de-correlates risk and impulsivity parameters, which results in measures that are more accurate and thus of greater utility to the many fields interested in individual differences in impulsivity.
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Recent developments in the experimental elicitation of time preference
TL;DR: In this article, the authors present a survey of recent developments in the design of experiments to elicit individuals' time preferences, with a focus on the measurement or control for potentially non-linear utility.
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Endowment effects in the risky investment game
TL;DR: The risky investment game of Gneezy and Potters (Q J Econ 112(2):631-645, 1997) has been proposed as a simple tool to measure risk aversion in applied settings, especially attractive in settings where participants may have limited education as discussed by the authors.
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Magnitude Effect in Intertemporal Allocation Tasks
Chen Sun,Jan Potters +1 more
TL;DR: In this paper, the authors investigate how the intertemporal allocation of monetary rewards is influenced by the size of the total budget, with a particular interest in the channels of influence.
References
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Journal ArticleDOI
Prospect theory: analysis of decision under risk
Daniel Kahneman,Amos Tversky +1 more
Book
Theory of Games and Economic Behavior
TL;DR: Theory of games and economic behavior as mentioned in this paper is the classic work upon which modern-day game theory is based, and it has been widely used to analyze a host of real-world phenomena from arms races to optimal policy choices of presidential candidates, from vaccination policy to major league baseball salary negotiations.
Journal ArticleDOI
Advances in prospect theory: cumulative representation of uncertainty
Amos Tversky,Daniel Kahneman +1 more
TL;DR: Cumulative prospect theory as discussed by the authors applies to uncertain as well as to risky prospects with any number of outcomes, and it allows different weighting functions for gains and for losses, and two principles, diminishing sensitivity and loss aversion, are invoked to explain the characteristic curvature of the value function and the weighting function.
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Golden Eggs and Hyperbolic Discounting
TL;DR: The authors analyzes the decisions of a hyperbolic consumer who has access to an imperfect commitment technology: an illiquid asset whose sale must be initiated one period before the sale proceeds are received.
Journal ArticleDOI
Time Discounting and Time Preference: A Critical Review
TL;DR: In this paper, the authors discuss the discounted utility (DU) model, its historical development, underlying assumptions, and "anomalies" -the empirical regularities that are inconsistent with its theoretical predictions.