Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76434
Authors: 
van Praag, Bernard M.S.
Booij, Adam S.
Year of Publication: 
2003
Series/Report no.: 
CESifo Working Paper 923
Abstract: 
In this paper we analyze a large sample of individual responses to six lottery questions. We derive a simultaneous estimate of risk aversion and the time preference discount rate per individual. This can be done because the consumption of a large prize is smoothed over a larger time period. It is found that both parameters strongly vary over individuals, while they are moderately negatively correlated. Furthermore we explain the estimated relative risk aversion and time preference by income, age, gender, entrepreneurship and an obesity index. Very significant effects are found. If we explain relative risk aversion in a simple model where time discounting is ignored, we find completely different estimates for this parameter. We conclude that in the case of lotteries with big prizes a simultaneous estimate of risk aversion and time preference is needed in order to avoid misspecification
Subjects: 
expected utility
risk aversion
time preference
lotteries
hypothetical questions
JEL: 
D12
D80
D90
E21
Document Type: 
Working Paper

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