Time discounting under uncertainty
Lorenzo Bastianello and
Jos\'e Heleno Faro
Papers from arXiv.org
We study intertemporal decision making under uncertainty. We give the first full characterization of discounted expected utility in a framework \`a la Savage. Despite the popularity of this model, no characterization is available in the literature. 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.
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