Joint-Elicitation of Elasticity of Intertemporal Substitution, Risk and Time Preferences

The elicitation of the elasticity of intertemporal substitution (EIS), discount factor, and risk attitude parameters is of central importance to economics, finances and public policy. This paper jointly elicits and estimates these parameters using experimental data. We employ a new model based on dynamic quantile preferences, where individuals maximize the stream of future τ-quantile utilities, for τ ∈ (0,1). In the quantile model, the risk attitude is captured by the quantile τ, which is, therefore, separable from the EIS and the time discount factor. Our estimation of the parameters of interest uses a structural maximum likelihood method. The individual's risk aversion is estimated below the median. The discount factor is marginally smaller than estimates reported in the literature, and the EIS is slightly larger than one, which suggests that utility over time is concave. The estimates for the elasticity contrast with those reported by the existing studies using observational disaggregated data, which in general find an elasticity smaller than one