Random Discounted Expected Utility

Abstract

This paper introduces the random discounted expected utility (R-DEU) model, which we have developed as a means to deal with heterogeneous risk and time preferences. The R-DEU model provides an explicit linkage between preference and choice heterogeneity. We prove it has solid comparative statics, discuss its identification, and demonstrate its computational convenience. Finally, we use two distinct experimental datasets to illustrate the advantages of the R-DEU model over common alternatives for estimating heterogeneity in preferences across individuals.

Publication
Accepted

Previously circulated as “Random Models for the Joint Treatment of Risk and Time Preferences”.

Ángelo Gutiérrez‑Daza
Ángelo Gutiérrez‑Daza
Research Economist

Monetary Research Division - Banco de México