Time lotteries and stochastic impatience

DeJarnette, Patrick, Dillenberger, David, Gottlieb, Daniel ORCID: 0000-0002-0555-6185 and Ortoleva, Pietro (2020) Time lotteries and stochastic impatience. Econometrica, 88 (2). 619 - 656. ISSN 0012-9682

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Abstract

We study preferences over lotteries in which both the prize and the payment date are uncertain. In particular, a time lottery is one in which the prize is fixed but the date is random. With Expected Discounted Utility, individuals must be risk seeking over time lotteries (RSTL). In an incentivized experiment, however, we find that almost all subjects violate this property. Our main contributions are theoretical. We first show that within a very broad class of models, which includes many forms of nonexpected utility and time discounting, it is impossible to accommodate even a single violation of RSTL without also violating a property we termed Stochastic Impatience, a risky counterpart of standard Impatience. We then present two positive results. If one wishes to maintain Stochastic Impatience, violations of RSTL can be accommodated by keeping Independence within periods while relaxing it across periods. If, instead, one is willing to forego Stochastic Impatience, violations of RSTL can be accommodated with a simple generalization of Expected Discounted Utility, obtained by imposing only the behavioral postulates of Discounted Utility and Expected Utility.

Item Type:	Article
Official URL:	https://www.econometricsociety.org/publications/ec...
Additional Information:	© 2019 The Econometric Society
Divisions:	Management
Subjects:	Q Science > QA Mathematics H Social Sciences > HB Economic Theory
JEL classification:	C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior C - Mathematical and Quantitative Methods > C8 - Data Collection and Data Estimation Methodology; Computer Programs > C81 - Methodology for Collecting, Estimating, and Organizing Microeconomic Data D - Microeconomics > D9 - Intertemporal Choice and Growth > D90 - General
Date Deposited:	18 Nov 2019 16:54
Last Modified:	20 Dec 2024 00:38
URI:	http://eprints.lse.ac.uk/id/eprint/102564

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