Permanent URL to this publication: http://dx.doi.org/10.5167/uzh-51769
Epper, Thomas; Fehr-Duda, Helga; Bruhin, Adrian (2010). Viewing the Future through a Warped Lens: Why Uncertainty Generates Hyperbolic Discounting. Working paper series / Institute for Empirical Research in Economics No. 510, University of Zurich.
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.
|Contributors:||Thomas Epper, Helga Fehr-Duda and Adrian Bruhin|
|Item Type:||Working Paper|
|Communities & Collections:||03 Faculty of Economics > Department of Economics|
Working Paper Series > Institute for Empirical Research in Economics (former)
|Deposited On:||29 Nov 2011 15:09|
|Last Modified:||09 Jul 2012 05:00|
|Series Name:||Working paper series / Institute for Empirical Research in Economics|
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