We develop a methodology for the measurement of the parameters of cumulative prospect theory and time discounting models based on tools from the preference measurement literature. These parameters are typically elicited by presenting decision makers with a series of choices between hypothetical alternatives, gambles or delayed payments. We present a method for adaptively designing the sets of hypothetical choices presented to decision makers, and a method for estimating the preference function parameters which capture interdependence across decision makers as well as response error. We apply our questionnaire design and estimation methods to a study of the characteristics of homeowners who owe more on their mortgage than the current value of the underlying real estate asset. Our estimates indicate that such homeowners have larger discount rates and present bias than others, but do not differ in their risk preferences.
Read the full paper at INSEAD.
Toubia, Olivier, Eric Johnson, Theodoros Evgeniou, and Philippe Delquie. "Estimation of Risk and Time Preferences: Response Error, Heterogeneity, Adaptive Questionnaires, and Experiment Evidence from Mortgagers." Faculty & Research Working Paper, INSEAD, July 30, 2010.
Each author name for a Columbia Business School faculty member is linked to a faculty research page, which lists additional publications by that faculty member.
Each topic is linked to an index of publications on that topic.