Working Papers
By Year:
Paper #  Author  Title  

15026 v. 2 
Patrick DeJarnette David Dillenberger Daniel Gottlieb Pietro Ortoleva 
Time Lotteries  
We study preferences over lotteries that pay a specific prize at uncertain future dates: time lotteries. The standard model of time preferences, Expected Discounted Utility (EDU),
implies that individuals must be risk seeking in this case. As a motivation, we show in an incentivized experiment that most subjects exhibit the opposite behavior, i.e., they are risk averse over time lotteries (RATL). We then make two theoretical contributions. First, we show that RATL can be captured by a generalization of EDU that is obtained by keeping the postulates of Discounted Utility and Expected Utility. Second, we introduce a new property termed Stochastic Impatience, a risky counterpart of standard Impatience, and show that not only the model above, but also substantial generalizations that allow for nonExpected Utility and non exponential discounting, cannot jointly accommodate it and RATL, showing a fundamental tension between the two. Download Paper


17013 
Simone CerreiaVioglio David Dillenberger Pietro Ortoleva Gil Riella 
Deliberately Stochastic  
We study stochastic choice as the outcome of deliberate randomization. After first deriving a general representation of a stochastic choice function with such property, we proceed to characterize a model in which the agent has preferences over lotteries that belong to the Cautious Expected Utility class (Cerreia Vioglio et al., 2015), and the stochastic choice is the optimal mix among available options. This model links stochasticity of choice and the phenomenon of Certainty Bias, with both behaviors stemming from the same source: multiple utilities and caution. We show that this model is behaviorally distinct from models of Random Utility, as it typically violates the property of Regularity, shared by all of them. Download Paper


15026A 
Patrick DeJarnette David Dillenberger Daniel Gottlieb Pietro Ortoleva 
"Time Lotteries: Online Appendix"  
This online appendix provides additional proofs, extensions, and all experiment instructions and questionnaire. Download Paper


15026 
Patrick DeJarnette David Dillenberger Daniel Gottlieb Pietro Ortoleva 
"Time Lotteries"  
We study preferences over lotteries that pay a specific prize at uncertain dates. Expected Utility with convex discounting implies that individuals prefer receiving $x in a random date with mean t over receiving $x in t days for sure. Our experiment rejects this prediction. It suggests a link between preferences for payments at certain dates and standard risk aversion. EpsteinZin (1989) preferences accommodate such behavior, and fit the data better than a model with probability weighting. We thus provide another justification for disentangling attitudes toward risk and time, as in EpsteinZin, and suggest new theoretical restrictions on its key parameters. Download Paper


14005 
Simone CerreiaVioglio David Dillenberger Pietro Ortoleva 
"Cautious Expected Utility and the Certainty Effect"  
Many violations of the Independence axiom of Expected Utility can be traced to subjects' attraction to riskfree prospects. The key axiom in this paper, Negative Certainty Independence (Dillenberger, 2010), formalizes this tendency. Our main result is a utility representation of all preferences over monetary lotteries that satisfy Negative Certainty Independence together with basic rationality postulates. Such preferences can be represented as if the agent were unsure of how to evaluate a given lottery p; instead, she has in mind a set of possible utility functions over outcomes and displays a cautious behavior: she computes the certainty equivalent of p with respect to each possible function in the set and picks the smallest one. The set of utilities is unique in a welldefined sense. We show that our representation can also be derived from a `cautious' completion of an incomplete preference relation. Download Paper
