Decision Making Over Time and Under Uncertainty: A Common Approach

Drazen Prelec and George Loewenstein
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Drazen Prelec: Harvard Business School, Boston, Massachusetts 02163

Management Science, 1991, vol. 37, issue 7, 770-786

Abstract: This paper considers a number of parallels between risky and intertemporal choice. We begin by demonstrating a one-to-one correspondence between the behavioral violations of the respective normative theories for the two domains (i.e., expected utility and discounted utility models). We argue that such violations (or preference reversals) are broadly consistent with three propositions about the weight that an attribute receives in both types of multiattribute choice. Specifically, it appears that: (1) if we add a constant to all values of an attribute, then that attribute becomes less important; (2) if we proportionately increase all values of an attribute, or if we change the sign of an attribute, from positive to negative, then that attribute becomes more important. The generality of these propositions, as well as the constraints they would impose on separable representations of multiattribute preferences, is discussed.

Keywords: time preference; time discounting; intertemporal choice; decision making under uncertainty; choice anomalies (search for similar items in EconPapers)
Date: 1991
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