Stochastic impatience and the separation of time and risk preferences

Dillenberger, David, Gottlieb, Daniel ORCID: 0000-0002-0555-6185 and Ortoleva, Pietro (2025) Stochastic impatience and the separation of time and risk preferences. Theoretical Economics, 20 (3). 1043 - 1080. ISSN 1933-6837

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Abstract

We study how the separation of time and risk preferences relates to a property called Stochastic Impatience. We show that, within a broad class of models, Stochastic Impatience holds if and only if risk aversion and the inverse elasticity of intertemporal substitution are sufficiently close. In the models of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for commonly used parameters. Our result also provides a simple, one-question test for the separation of time and risk preferences.

Item Type:	Article
Additional Information:	© 2025 The Authors
Divisions:	Management
Subjects:	H Social Sciences > HB Economic Theory H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
JEL classification:	D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty D - Microeconomics > D9 - Intertemporal Choice and Growth > D90 - General G - Financial Economics > G1 - General Financial Markets > G11 - Portfolio Choice; Investment Decisions
Date Deposited:	11 Nov 2024 10:21
Last Modified:	08 Aug 2025 16:03
URI:	http://eprints.lse.ac.uk/id/eprint/125994

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