Subjective evaluation of delayed risky outcomes for buying and selling positions: The behavioral approach

Uri Benzion, Jan Pieter Krahnen, Tal Shavit

Research output: Contribution to journalArticlepeer-review

2 Scopus citations


This paper analyzes time discounting as a function of risk, using reservation prices. Based on experimental data, we compare bidder reservation prices for riskless assets with those for risky assets. The experiments rely on a second price auction with real monetary incentives and real delay in payoffs. We estimate the pure time discount rate for different maturities, considering riskless assets (bonds) and risky assets (delayed lotteries). An innovation in the experimental design allows disentangling pure time from pure risk discounting effects. If subjects bid for assets, we find implied discount rates for risky assets to be uniformly lower than those for riskless assets, across all maturities (the risk moderation effect). However, there is no risk moderation effect if subjects quote ask prices. We argue that delaying a payoff has a stronger effect on the price of bonds than on the price of risky assets since, in the case of bonds, the investor moves from a position of certainty to a position of risk, or uncertainty. Our findings on the risk moderation effect may be used to explain the attractiveness of compensation contracts with options, as commonly used in the financial industry.

Original languageEnglish
Pages (from-to)247-265
Number of pages19
JournalAnnals of Finance
Issue number2
StatePublished - May 2011
Externally publishedYes


  • Decision-making
  • Intertemporal choice
  • Risk
  • Time discounting
  • Willingness to accept (WTA)
  • Willingness to pay (WTP)


Dive into the research topics of 'Subjective evaluation of delayed risky outcomes for buying and selling positions: The behavioral approach'. Together they form a unique fingerprint.

Cite this