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Viewing the future through a warped lens: Why uncertainty generates hyperbolic discounting

Epper, Thomas ; Fehr-Duda, Helga ; Bruhin, Adrian

In: Journal of Risk and Uncertainty, 2011, vol. 43, no. 3, p. 169-203

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    Titre
    • Viewing the future through a warped lens: Why uncertainty generates hyperbolic discounting
    Auteur
    • Epper, Thomas. ETH Zurich, Chair of Economics, Weinbergstrasse 35, 8092, Zurich, Switzerland
    • Fehr-Duda, Helga. ETH Zurich, Chair of Economics, Weinbergstrasse 35, 8092, Zurich, Switzerland
    • Bruhin, Adrian. ETH Zurich, Chair of Economics, Weinbergstrasse 35, 8092, Zurich, Switzerland
    Type de document
    • Postprint
    Langue
    • Anglais
    Publié dans
    • Journal of Risk and Uncertainty, 2011, vol. 43, no. 3, p. 169-203. Springer US; http://www.springer-ny.com
    Autre version électronique
    Identifiant OAI-PMH
    • oai:doc.rero.ch:317182
    Summary
    A large body of experimental research has demonstrated that, on average, people violate the axioms of expected utility theory as well as of discounted utility theory. In particular, aggregate behavior is best characterized by probability distortions and hyperbolic discounting. But is it the same people who are prone to these behaviors? Based on an experiment with salient monetary incentives we demonstrate that there is a strong and significant relationship between greater departures from linear probability weighting and the degree of decreasing discount rates at the level of individual behavior. We argue that this relationship can be rationalized by the uncertainty inherent in any future event, linking discounting behavior directly to risk preferences. Consequently, decreasing discount rates may be generated by people's proneness to probability distortions