Cultural Finance

There is a growing interest in individual time and risk preferences. Little is known about how these preferences are formed. It is hypothesised that parents may transmit their preferences to their offspring. This paper examines the correlation in offspring and parental time and risk preferences using data from an annual household survey in Australia (the HILDA survey). Both time and risk preferences are examined and we explored whether the correlation in time and risk preferences varies across the distribution of preferences and across the across the four parent–child dyads (mother/daughter, mother/son, father/daughter, father/son). The results show that there is a significant relationship between parents and their young adult offspring risk and time preference measures. The correlation varies across the distribution of time preferences. The correlation was largest for longer planning horizons. Risk averse parents are more likely to have risk averse children. Except for the father/daughter dyad risk seeking parents are more likely to have risk seeking offspring. Some gender differences were found. The association in parental and offspring time preference was larger for mothers than fathers. Daughters are more likely to be influenced by their mother’s risk preferences, however, sons are equally influenced by both parents. The results of this study suggest that the transmission in preferences is more nuanced than previously thought and parental gender may be important.

Commentary] TIME FOR A CHANGE OF PERSPECTIVE ON BEHAVIOUR CHANGE INTERVENTIONS?

PurposeUrbanization is a main driver of the transformation from agricultural-based economies to service-based economies. At the same time, urbanization might also alter preferences and attitudes such as risk and time preferences that contribute to economic growth and foster this transition. To study the effect of urbanization, few studies have compared individual time or risk preferences in rural and urban settings, reporting mixed results. This study analyses how risk and time preferences alter along the rural–urban interface and assesses the correlation of socio-economic, socio-cultural and demographic characteristics with these preferences. Using such an approach provides insights how preferences are altered in areas of transition as the rural–urban interface mirrors different stages of urbanization.Design/methodology/approachUsing experimental approaches, risk attitudes and time preferences of 1,117 agricultural and non-agricultural households were elicited along the rural–urban interface of the fast-developing Indian megacity Bengaluru in 2016/17. The study reports joint estimations of risk and time preferences and discusses the influence of urbanization on these preferences.FindingsResults show that households are on average slightly risk-averse and highly impatient. The results also indicate a decline in discount rates towards rural areas while risk preferences do not considerably differ between those areas. This puzzling result may be explained by difference response of rural and urban areas to the Demonetization policy of the Indian government in 2016.Originality/valueThe research design compares jointly estimated risk and time preferences of agricultural and non-agricultural households of a rapidly urbanizing area in a low-medium income country.

Adolescent Time and Risk Preferences: Measurement, Determinants and Field Consequences

Forest degradation has steadily increased throughout much of the world. The cause of this continued degradation is complex and multifaceted but there is a growing realization that a key cause, especially in developing countries, is insecure rights to ownership and use of forest resources. This realization coupled with a call for pro-poor forestry policy has stimulated the recent trend in forest policy toward strengthening property rights for forest resources by transferring property rights from the state to communities and individuals, giving them defined rights to manage and extract forest resources. However, a big puzzle remains unsolved—such reforms on property rights have not consistently led to the intended sustainable resource use and management, particularly in developing countries. The overall goal of this dissertation research is to offer insight into why forest tenure reforms may not always lead to their intended effects by focusing on how an individual’s preferences over time and risk affect individual responses to forest tenure reforms. Since forest management involves dynamic decision making with uncertainty in future returns, individuals’ forest management decisions, as well as their responses to forest tenure reforms, will depend on: 1) how an individual perceives preference for income today versus the future (time preference), and 2) an individual’s attitude towards risk (risk preference). For example, even if individuals are given secure property rights, those with strong preference for current benefits (most commonly observed among the poor) may have the incentive to use forest resources faster. Failure to recognize the impacts of time and risk preferences of individuals may result in outcomes that policy maker sought to prevent. Furthermore, forest tenure reforms are often implemented in areas where the poverty rate is high. Those living in poverty are often assumed to have both high discount rates (i.e., impatient) and high levels of risk aversion, which make them less likely to make investments. Such characteristics may also hinder the intended effects of forest tenure reforms. This study examines these issues in the context of rural China, where a large-scale reform of forest property rights is being implemented in areas where the poverty rate is still high. To examine these issues, this dissertation research has three objectives: 1) identify the impact of forest property rights reforms on forest management decisions and how individual risk and time preferences may augment those impacts; 2) examine the correlation between time and risk preferences and poverty; and 3) identify the effect

Adolescent Time and Risk Preferences: Measurement, Determinants and Field Consequences

Associations of risk and time preferences with Japanese workers' physical activity and sedentary behavior

The purpose of this study is to examine whether girls and boys exhibit different risk and time preferences and how this difference evolves during the critical phase of adolescence. To achieve this, we use a large and powered sample of 4830 non-self-selected teenagers from 207 classes across 22 Spanish schools with very different socioeconomic backgrounds. Alongside time and risk preferences, we also collected additional information about class attributes, social network measures, students' characteristics, and the average level of economic preferences of friends. These measures enable us to account for potentially omitted variables that were not considered in previous studies. The results indicate that there are no significant gender differences in time and risk preferences, but older subjects exhibit more sophisticated time preferences and higher risk aversion. We also perform an exploratory heterogeneity analysis, which unveils two important results: first, cognitive abilities play a critical role in the development of time and risk preferences; second, interaction within the class social network does matter.

The role of time and risk preferences in smoking inequalities: A population-based study

Background:We aimed to explore the correlation between the time and risk preferences and the smoking behavior of adult population in western Iran.Methods:Overall, 792 individuals with the age of 35 to 65 yr participating in an ongoing national cohort study (Persian Cohort) were approached to complete a pre-structured questionnaire in 2017. Time preferences were measured using a standard choice-based method. The individuals’ discount rates were identified by questions that offered binary monetary choices on immediate future and distant future, by making trade-offs between them. Probit regression model was used to investigate the relationship between time preferences and smoking when controlling for demographic and socioeconomic variables.Results:Time and risk preferences had statistically significant direct correlations with smoking. A unit increase in discount rate was associated with a 4.4% percentage point increase in the likelihood of being smoker. A present-biased individual had 5.7% percentage points lower likelihood of being smoker. Moreover, a unit increase in willingness to take the risk increased the likelihood of being a smoker by 1.5% percentage points.Conclusion:Time and risk preferences are important determinants of smoking behavior. These factors should be considered in designing effective prevention and control programs. Policies that increase the immediate costs of cigarette smoking or the immediate benefits of smoking cessation are likely to have a greater impact on reducing the prevalence of cigarette smoking.

Changing physical activity and dietary behavior in chronic disease patients is associated with significant health benefits but is difficult to achieve. An often-used strategy is for the physician or other health professional to encourage behavior changes by providing advice on the health consequences of such behaviors. However, adherence to advice on health behavior change varies across individuals. This paper uses data from a population-based cross-sectional survey of 1849 individuals with chronic disease to explore whether differences in individuals' time and risk preferences can help explain differences in adherence. Health behaviors are viewed as investments in health capital within the Grossman model. Physician advice plays a role in the model in that it improves the understanding of the future health consequences of investments. It can be hypothesized that the effect of advice on health behavior will depend on an individuals' time and risk preference. Within the survey, which measured a variety of health-related behaviors and outcomes, including receipt and compliance with advice on dietary and physical activity changes, time preferences were measured using financial planning horizon, and risk preferences were measured through a commonly used question which asked respondents to indicate their willingness to take risks on a ten-point scale. Results suggest that time preferences play a role in adherence to physical activity advice. While time preferences also play a role in adherence to dietary advice, this effect is only apparent for males. Risk preferences do not seem to be associated with adherence. The results suggest that increasing the salience of more immediate benefits of health behavior change may improve adherence.

The attitude to self-care of individuals with type 2 diabetes (T2D) is commonly influenced by their time preferences (i.e., long-run discounting and time-consistency), and/or risk preference (i.e., risk tolerance). Tailored preference-based self-care management may improve clinical and cost-effectiveness. This study investigates associations between elicited time and risk preferences with diabetes-related outcomes, i.e., Hemoglobin A1c (HbA1c) and blood glucose level. Time and risk preferences of 396 T2D patients were measured by incentivized tasks. Clinical data was retrieved from hospital information systems for diabetes outcomes (HbA1c and blood glucose levels) and clinical factors. We assessed patient diabetes-associated self-care behaviors and other epidemiological factors by questionnaire. Multivariate linear regressions with stepwise model selection were used to evaluate potential associations with T2D outcomes. We found that participants who favored immediate gratification over greater long-term benefits (time-inconsistent towards present or present-biased) had significantly higher HbA1c levels than time-consistent participants, with a coefficient (95% CI) of 0.41 (0.02,0.80). Neither time nor risk preferences were significantly associated with blood glucose levels. These findings suggest the use of tailored diabetes interventions to help present-biased patients overcome self-control problems. This targeted approach may be more cost-effective but requires formal testing.

Greater adoption of renewable energy technologies by households is a key component of decarbonization and energy transition goals. Although existing literature has examined how sociodemographic characteristics, “green” preferences, and peer effects impact adoption of new energy technology, the role of behavioral preferences has not been adequately studied. In this paper, we examine the effect of two types of behavioral preferences, namely the degree of risk tolerance (risk preference) and attitude toward delayed reward (time preference) on the contract decision to lease or own a solar photovoltaic (PV) system. We develop a theoretical framework to show that the effect of risk and time preferences on the relative utilities from the two contracts is monotonic: Lower risk aversion and lower discount rate (more patience) imply a higher chance of solar PV ownership. To test these predictions empirically, we first estimate preference parameters (risk aversion and discount rate) from laboratory data collected from solar PV adopters. We then combine the parameter estimates with data on actual solar PV contract choice to examine the relationship between solar PV adopters' time and risk preferences and their lease‐versus‐own choice. Our regression results confirm that less risk averse individuals have a higher tendency to choose the ownership option, whereas more patient individuals are (weakly) more likely to own their solar PV systems. These findings contribute to a greater understanding of the role of behavioral factors in household decisions related to energy technologies.

Assessing individuals’ time and risk preferences is crucial in domains such as health-related decisions (e.g., dieting, addictions), environmentally-friendly practices, and saving opportunities. We propose a new method to jointly elicit and estimate risk attitudes and intertemporal choices. We use a novel individual level estimation procedure based on a hierarchical Bayes methodology, which can integrate different functional forms for discounting and risk attitudes. This method provides individual level estimates, and allows us to explore the heterogeneity in the data. In addition, we report a negative correlation between risk and time preferences, implying that risk-seeking individuals are less patient and less willing to defer consumption.

We investigated the role of risk tolerance, time preference, and asthma-specific attitudes in adherence to asthma control medications. Students with persistent asthma completed an online survey on asthma beliefs, risk tolerance, and time preference (n = 47). The time preference questions measure the degree to which the individual discounts future outcomes and essentially prefers immediate gratification to delayed gratification. The risk tolerance questions indicate the individual's dislike of uncertainty about outcomes. We analyzed the relationship between the independent and dependent variables. Feelings of embarrassment and concern about medication, as well as risk tolerance and time preference, were found to be significant predictors of adherence to control medication in the logistic regression. Analysis of probabilities associated with different profiles shows that at high rates of risk tolerance and discounting of future outcomes, the probability of adherence is near 0 regardless of asthma-specific attitudes. Asthma attitudes have a statistically significant effect for individuals with low rates of risk tolerance and time preference. The risk tolerance and time preferences of the target group should be considered when designing an asthma-intervention program. Individuals who strongly prefer immediate gratification over future benefits and are willing to tolerate uncertain outcomes are unlikely to adhere to controller medication, regardless of their asthma attitudes. In contrast, efforts to affect relevant attitudes will be most fruitful for individuals with low rates of risk tolerance and time preference. However, as we cannot extrapolate these results to a larger population, we must view them with caution.