Measuring Preferences Over the Temporal Resolution of Consumption Uncertainty

We develop and test a novel experimental design that allows to directly elicit preferences over the temporal resolution of consumption uncertainty. To identify preferences over the temporal resolution of consumption uncertainty – as opposed to income uncertainty – we investigate choices over consumption (real effort). We find that on average subjects weakly prefer early resolution of consumption uncertainty: They are willing to forgo 4.52% of their total consumption in order to resolve all uncertainty immediately. However, this result is mainly driven by a minority with strong preferences for early resolution of consumption uncertainty. Most subjects are indifferent towards the temporal resolution of consumption uncertainty. To test whether the theoretical link between preferences over the temporal resolution of consumption uncertainty and preferences over risk, time and intertemporal substitution holds as formulated in recursive utility models, we additionally elicit these preferences experimentally. Surprisingly, we find that recursive utility has no predictive power in explaining preferences over the temporal resolution of consumption uncertainty