Allais Meets Strotz: Remarks on the Relation between Present Bias and the Certainty Effect

The paper establishes a tight relation between non-standard behaviors in the domains of risk and time by considering a decision maker with non-expected utility preferences who believes that only present consumption is certain while any future consumption is uncertain. We provide the rst complete characterization of the two-way relations between i) certainty e ect and present bias, and, ii) common ratio e ect and the common di erence e ect. A corollary to our results is that hyperbolic discounting implies the Common Ratio E ect and that quasi-hyperbolic discounting implies the Certainty E ect.