Weighted Temporal Utility

Anke Gerber and Kirsten I.M. Rohde
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Anke Gerber: University of Hamburg, Germany
Kirsten I.M. Rohde: Erasmus University Rotterdam, the Netherlands

No 13-167/1, Tinbergen Institute Discussion Papers from Tinbergen Institute

Abstract: We propose a utility representation for preferences over risky timed outcomes, the weighted temporal utility model. It separates subjective evaluations of outcomes from attitudes towards psychological distance induced by risks and delays. Subjective evaluations of outcomes may depend on the time of receipt. A natural special case of our model arises when decision makers evaluate an outcome according to the extra utility it generates on top of expected baseline consumption, which can be interpreted as the status quo. Thus, deviations from stationarity can be driven by expected changes in baseline consumption, and need not be irrational. Moreover, a decision maker with a weighted temporal utility function can have time-consistent yet non-stationary preferences or stationary yet time-inconsistent preferences. We provide a characterization of our model and propose a non-parametric approach to elicit a weighted temporal utility function.

Keywords: Intertemporal choice; stationarity; time consistency (search for similar items in EconPapers)
JEL-codes: D81 D91 (search for similar items in EconPapers)
Date: 2013-10-14, Revised 2014-11-20
New Economics Papers: this item is included in nep-mic and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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