The impact of agency on time and risk preferences

Abstract

Scholars have long argued for the central role of agency—the size of one’s choice set—in the human experience. We demonstrate the importance of agency in shaping people’s preferences. We first examine the effects of resource scarcity—which has been associated with both impatience and a lack of agency—on patience and risk tolerance, successfully replicating the decrease in patience among those exposed to scarcity. Critically, however, we show that endowing individuals with agency over scarcity fully moderates this effect, increasing patience substantially. We further demonstrate that agency’s impact on patience is partly driven by greater risk tolerance. These results hold even though nearly all individuals with greater agency do not exercise it, suggesting that merely knowing that one could alleviate scarcity is sufficient to change behavior. We then demonstrate that the effects of agency generalize to other adverse states, highlighting the potential for agency-based policy and institutional design.