Experiments on time preference and risk aversion

Abstract

Many of the decisions we make as economic agents involve choices that play out overtime and that involve outcomes that do not occur with certainty. This thesis explores these two dimensions of agent choice, time preference and risk aversion, using the tools of lab and online experiments. In the first chapter the thesis explores the impact of choice domain on agents’ discounting and risk aversion by presenting subjects with choices over money and environmental outcomes in an incentivised lab experiment.It finds that while discounting behaviour remains unchanged, risk aversion increases when subjects make choices in the environmental domain. In the second chapter the thesis explores whether experimental incentives produce different results in the elicitation of time and risk preferences when compared to hypothetical experiments. Using a double-layered incentive mechanism it finds evidence that in discounting experiments in the environmental domain real incentives lead to increased patience as well as a decrease in the variance of responses. In monetary discounting we observe a significant increase in variance of incentivised responses compared to hypothetical ones. No such an effect is found in the risk aversion task. This suggests that the impact of incentives may be linked to familiarity and the cognitive load of the task being performed. In the third chapter the thesis explores the relationships between discounting anomalies by adapting a discrete choice experiment in order to elicit them simultaneously. It finds that the various anomalies are highly interacted, suggesting that their effect on utility is dependent on each other. This suggests that multi-attribute elicitation of such anomalies may provide further insight into their impact on discounting behaviour.

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ORCID for Michael Vlassopoulos: orcid.org/0000-0003-3683-1466

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