Why Do People Discount? The Role of Impatience and Future Uncertainty

Theory-Experimental Seminar

Enrico Diecidue

INSEAD

11-Dec-2023

seminar – 14:30

Despite the intuition that risk preferences affect intertemporal choice because the future is uncertain, time discounting is commonly regarded as a reflection of impatience. Our experimental data show that approximately 43% of the observed time discounting can be explained by an aversion against future uncertainty rather than impatience, even when controlling for utility curvature. Future uncertainty receives disproportional weight because subjects engage in subproportional probability weighting, a behavioral regularity that does not feature in the standard risk framework of most intertemporal choice models. We find that many people do not demand compensation for waiting but rather for an uncertain future.