Risk Attitudes and Heterogeneous Rates of Time Preference

Abstract

This paper examines the relationship between risk attitudes and individual rates of time preference. We find that heterogeneous risk preferences and their allied behaviors are correlated with differences in individual discount rates. To illustrate our theory we examine the rates of time preference with respect to discounted years of life for smokers, former smokers, and nonsmokers. Of the subgroups examined, smokers have the highest and former smokers have the lowest rates of time preference. Estimates of the different implicit values of a statistical life for these groups are consistent with the different estimated rates of time preference.