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Time discounting under uncertainty

Lorenzo Bastianello and Jos\'e Heleno Faro

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Abstract: We study intertemporal decision making under uncertainty. We fully characterize discounted expected utility in a framework \`a la Savage. Despite the popularity of this model, no characterization is available in this setting. The concept of stationarity, introduced by Koopmans for deterministic discounted utility, plays a central role for both attitudes towards time and towards uncertainty. We show that a strong stationarity axiom characterizes discounted expected utility. When hedging considerations are taken into account, a weaker stationarity axiom generalizes discounted expected utility to Choquet discounted expected utility, allowing for non-neutral attitudes towards uncertainty.

Date: 2019-11, Revised 2020-03
New Economics Papers: this item is included in nep-mic and nep-upt
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Handle: RePEc:arx:papers:1911.00370