Time and Risk

John Quiggin and John Horowitz ()

Journal of Risk and Uncertainty, 1995, vol. 10, issue 1, 37-55

Abstract: Intertemporal choice has obvious similarities with choice under uncertainty. However, because of technical difficulties in mapping results between the two domains, theoretical analysis of these topics has proceeded independently. In this article, we show that, using Rank Dependent Expected Utility rather than Expected Utility as the basic uncertain choice model, numerous analogies between the two fields may be identified and exploited. The key result is the derivation of a natural analogy between risk-aversion and impatience. This permits the reinterpretation of well-known results on stochastic dominance and comparative risk-aversion in the context of intertemporal choice. It is also possible to reinterpret results on intertemporal optimization in order to derive new results for portfolio choice problems under uncertainty. Copyright 1995 by Kluwer Academic Publishers

Date: 1995
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