Discounted and Expected Utility from the Probability and Time Trade-Off Model

Salvador Cruz Rambaud and Ana María Sánchez Pérez
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Ana María Sánchez Pérez: Departamento de Economía y Empresa, Universidad de Almería, La Cañada de San Urbano, s/n, 04120 Almería, Spain

Mathematics, 2020, vol. 8, issue 4, 1-17

Abstract: This paper shows the interaction between probabilistic and delayed rewards. In decision- making processes, the Expected Utility (EU) model has been employed to assess risky choices whereas the Discounted Utility (DU) model has been applied to intertemporal choices. Despite both models being different, they are based on the same theoretical principle: the rewards are assessed by taking into account the sum of their utilities and some similar anomalies have been revealed in both models. The aim of this paper is to characterize and consider particular cases of the Time Trade-Off (PPT) model and show that they correspond to the EU and DU models. Additionally, we will try to build a PTT model starting from a discounted and an expected utility model able to overcome the limitations pointed out by Baucells and Heukamp.

Keywords: risk; delay; decision-making process; probability; discount (search for similar items in EconPapers)
JEL-codes: C (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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