Is there time discounting for risk premium?

Tal Shavit, Mosi Rosenboim

Research output: Contribution to journalArticlepeer-review

5 Scopus citations

Abstract

Individuals with a higher subjective discount rate concentrate more on the present and delay is more significant for them. However, when a risky asset is delayed, not only is the outcome delayed but also the risk. In this paper, we suggest a new, two-stage experimental method with real monetary incentives that allows us to distinguish between the effect of the risk and the effect of the time when pricing a risky asset. We show that when individuals have greater preference for the present, their risk aversion for a risky asset realized in the future decreases. We argue that the effect of the risk for future asset is lower for individuals with higher time preference because they discount not only the outcome but also the risks.

Original languageEnglish
Pages (from-to)393-404
Number of pages12
JournalJournal of the Experimental Analysis of Behavior
Volume103
Issue number2
DOIs
StatePublished - 1 Mar 2015

Keywords

  • Decision-making process
  • Delay discounting
  • Experiment design
  • Future
  • Human
  • Risk
  • Willingness to pay

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