Time preferences and risk aversion: tests on domain differences
The design and evaluation of environmental policy requires the incorporation of time and risk elements as many environmental outcomes extend over long time periods and involve a large degree of uncertainty. Understanding how individuals discount and evaluate risks with respect to environmental outco...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
| Published: |
2016.
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| Subjects: | |
| Online Access: | Get fulltext Get fulltext |
| Summary: | The design and evaluation of environmental policy requires the incorporation of time and risk elements as many environmental outcomes extend over long time periods and involve a large degree of uncertainty. Understanding how individuals discount and evaluate risks with respect to environmental outcomes is a prime component in designing effective environmental policy to address issues of environmental sustainability, such as climate change. Our objective in this study is to investigate whether subjects' time preferences and risk aversion across the monetary domain and the environmental domain differ. Crucially, our experimental design is incentivized: in the monetary domain, time preferences and risk aversion are elicited with real monetary payoffs, whereas in the environmental domain, we elicit time preferences and risk aversion using real (bee-friendly) plants. We find that subjects' time preferences are not significantly different across the monetary and environmental domains. In contrast, subjects' risk aversion is significantly different across the two domains. More specifically, subjects (men and women) exhibit a higher degree of risk aversion in the environmental domain relative to the monetary domain. Finally, we corroborate earlier results, which document that women are more risk averse than men in the monetary domain. We show this finding to, also, hold in the environmental domain. |
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