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Weighted temporal utility

Anke Gerber () and Kirsten I. M. Rohde ()
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Anke Gerber: Universität Hamburg
Kirsten I. M. Rohde: Erasmus University Rotterdam

Economic Theory, 2018, vol. 66, issue 1, 187-212

Abstract: Abstract This paper considers preferences over risky timed outcomes and proposes the weighted temporal utility (WTU) model which separates anticipated subjective evaluations of outcomes from attitudes toward psychological distance induced by risks and delays. Anticipating the subjective evaluation of an outcome requires the decision maker to project himself to the future and to imagine how much he will appreciate the outcome once he receives it. This projection may, but need not, be accurate. We provide a characterization of the WTU model in a static setting and propose a nonparametric method to measure its weighting and utility functions. We also consider a dynamic setting which allows for a varying decision time. The dynamic WTU model can accommodate the standard discounted expected utility model as well as observed deviations from stationarity, time invariance, and time consistency. It therefore enhances our understanding of the drivers of these behavioral phenomena.

Keywords: Intertemporal choice; Time preferences; Risk preferences; Stationarity; Time consistency; Time invariance (search for similar items in EconPapers)
JEL-codes: D91 D81 (search for similar items in EconPapers)
Date: 2018
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