Title

Stochastic Impatience and the Separation of Time and Risk Preferences

Author(s)

David Dillenberger David Dillenberger (University of Pennsylvania)

Daniel Gottlieb Daniel Gottlieb (London School of Economics)

Pietro Ortoleva Pietro Ortoleva (Princeton University)

Abstract

We study how the separation of time and risk preferences relates to a behavioral property that generalizes impatience to stochastic environments: Stochastic Impatience. We show that, within a broad class of models, Stochastic Impatience holds if and only if risk aversion is "not too high" relative to the inverse elasticity of intertemporal substitution. This result has implications for many known models. For example, for those of Epstein and Zin (1989) and Hansen and Sargent (1995), Stochastic Impatience is violated for all commonly used parameters.

Creation Date

2020-04

Section URL ID

Paper Number

2020-54

URL

http://pietroortoleva.com/papers/SIvsTimeRisk.pdf

File Function

Jel

D81, D90, G11, E7

Keyword(s)

Stochastic Impatience, Epstein-Zin preferences, Separation of Time and Risk preferences, Risk Sensitive preferences, Non-Expected Utility

Suppress

false

Series

13