From Decision in Risk to Decision in Time - and Return: A Restatement of Probability Discounting

Marc-Arthur Diaye (), André Lapidus and Christian Schmidt
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Marc-Arthur Diaye: CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique
Christian Schmidt: PHARE - Philosophie, Histoire et Analyse des Représentations Économiques - UP1 - Université Paris 1 Panthéon-Sorbonne

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Abstract: This paper aims at restating, in a decision theory framework, the results of some signicant contributions of the literature on probability discounting that followed the publication of the pioneering article by Rachlin et al. (1991). We provide a restatement of probability discounting in terms of rank-dependent utility, in which the utilities of the outcomes of n-issues lotteries are weighted by probabilities transformed after their transposition into time-delays. This formalism makes the typical cases of rationality in time and in risk mutually exclusive, but allows looser types of rationality. The resulting attitude toward probability and toward risk are then determined in relation to the values of the two parameters involved in the procedure of probability discounting.

Keywords: Probability discounting; time discounting; logarithmic time perception; rank-dependent utility; rationality; attitude toward probabilities; attitude toward risk (search for similar items in EconPapers)
Date: 2021-06-10
New Economics Papers: this item is included in nep-cwa, nep-hpe, nep-rmg and nep-upt
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Working Paper: From Decision in Risk to Decision in Time - and Return: A Restatement of Probability Discounting (2021)
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