Higher-order risk preferences over wealth and time: Theory and behavioral consistency

Hannah Chen (), Cary Deck (), Rachel Huang (), Larry Tzeng () and Lin Zhao ()
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Hannah Chen: Department of Finance, National Central University
Cary Deck: Department of Economics, University of Alabama & Economic Science Institute, Chapman University
Rachel Huang: Department of Finance, National Central University
Larry Tzeng: Department of Finance, National Taiwan University
Lin Zhao: School of Business Administration, Southwestern University of Finance and Economics

Working Papers from Chapman University, Economic Science Institute

Abstract: Economic decisions often involve uncertainty in both wealth and time. We introduce an axiom requiring the trade-of between wealth and time to remain invariant across both domains. Together with standard axioms, it characterizes Expected Additive Time-Wealth Utility (EATWU). We provide an alternative characterization based on consistency in higher-order risk preferences and extend risk apportionment to decisions involving wealth, time, and both. Our model predicts consistent risk allocations across these domains within each order. A laboratory experiment examining second-, third-, and fourth-order risk preferences fnds systematic relationships across domains that are broadly consistent with the model’s predictions.

Keywords: Time and Wealth; Cross-Domain Stationarity; Higher-Order Risk Preferences; Risk Apportionment; Experimental Economics (search for similar items in EconPapers)
JEL-codes: C9 D8 (search for similar items in EconPapers)
Date: 2026
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:chu:wpaper:26-13

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