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Measuring Risk and Time Preferences and Their Connections with Behavior

Authors:
Publication Date:
Jan 2012
Project Programs:
Consumer Finance Working Group

We consider evidence on the direct elicitation of three broad classes of individual preferences. Our coverage of risk preferences includes risk aversion as classically defined, and also ambiguity aversion and loss aversion. Our coverage of time preferences includes the classic issue of how to disentangle preference from other determinants of discount rates, and also time-inconsistency and other sources of costly self-control. Our coverage of process preferences (includes regret and transaction utility) is much shorter, reflecting the lack of similar work on measurement. We thus focus more on identifying key gaps in our knowledge for further research. We do not cover atemporal preferences over different goods in a consumption bundle, or social preferences (see [cites] for reviews). Nor do we cover meta-awareness of one’s (changing) preferences—e.g., projection bias, sophistication/naivete about self-control problems-- about which there has been less work on direct elicitation.

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