Why Do People Discount? The Role of Impatience and Future Uncertainty

Despite the intuition that risk preferences affect intertemporal choice because the future is uncertain, time discounting is commonly regarded as a reflection of impatience. This interpretation of time discounting rests on the assumption that risk preferences are fully controlled for in the estimation of time discounting and no longer act as a confounder. However, the evidence provided in this paper contradicts this standard interpretation. Through an experiment, we show that despite accounting for the utility curvature—the established approach to control for risk preferences—about 43% of the observed time discounting can be explained by an aversion against future uncertainty rather than impatience. Future uncertainty, although small, receives disproportional weight because subjects engage in subproportional probability weighting, an important characteristic of risk preferences that does not feature in the standard risk framework of most intertemporal choice models. Our finding implies that many people do not demand compensation for their waiting time but rather for an uncertain future