Risk in Time: The Intertwined Nature of Risk Taking and Time Discounting

Thomas F Epper and Helga Fehr-Duda

Journal of the European Economic Association, 2024, vol. 22, issue 1, 310-354

Abstract: Standard economic models view risk taking and time discounting as two independent dimensions of decision making. However, mounting experimental evidence demonstrates striking parallels in patterns of risk taking and time discounting behavior and systematic interaction effects, which suggests that there may be common underlying forces driving these interactions. Here, we show that the inherent uncertainty associated with future prospects together with individuals’ proneness to probability weighting generates a unifying framework for explaining a large number of puzzling behavioral findings: delay-dependent risk tolerance, aversion to sequential resolution of uncertainty, preferences for the timing of the resolution of uncertainty, the differential discounting of risky and certain outcomes, hyperbolic discounting, subadditive discounting, and the order dependence of prospect valuation. Furthermore, all these phenomena can be accommodated by the same set of preference parameter values and plausible levels of inherent uncertainty.

Date: 2024
References: Add references at CitEc
Citations:

Downloads: (external link)
http://hdl.handle.net/10.1093/jeea/jvad041 (application/pdf)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:oup:jeurec:v:22:y:2024:i:1:p:310-354.

Access Statistics for this article

Journal of the European Economic Association is currently edited by Romain Wacziarg

More articles in Journal of the European Economic Association from European Economic Association
Bibliographic data for series maintained by Oxford University Press (joanna.bergh@oup.com).