Separating Risk Preference and Time Preference

29 Pages Posted: 1 Jul 2012

See all articles by Bin Miao

Bin Miao

Shanghai University of Finance and Economics - School of Economics

Songfa Zhong

National University of Singapore (NUS) - Department of Economics

Date Written: June 30, 2012

Abstract

In the studies of decision making under risk and time, an increasingly important question is whether the utility representations should be the same for both circumstances. This study aims to test the separation between risk preference and time preference in a controlled laboratory setting, where subjects make intertemporal allocation decisions under different types of correlated risks. Our results show that risk and time preferences are distinct, and furthermore support the notion proposed by Epstein and Zin (1989) on the separation between risk attitude and intertemporal substitution. In addition, the estimated parameter for risk attitude is significantly smaller than that for intertemporal substitution. These findings shed light on recent literature linking risk preference and time preference.

JEL Classification: C91, D81

Suggested Citation

Miao, Bin and Zhong, Songfa, Separating Risk Preference and Time Preference (June 30, 2012). Available at SSRN: https://ssrn.com/abstract=2096944 or http://dx.doi.org/10.2139/ssrn.2096944

Bin Miao

Shanghai University of Finance and Economics - School of Economics ( email )

777 Guoding Road
Shanghai, 200433
China

Songfa Zhong (Contact Author)

National University of Singapore (NUS) - Department of Economics ( email )

1 Arts Link, AS2 #06-02
Singapore 117570, Singapore 119077
Singapore

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