Weighted temporal utility

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 outc...

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Bibliographic Details
Published inEconomic theory Vol. 66; no. 1; pp. 187 - 212
Main Authors Gerber, Anke, Rohde, Kirsten I. M.
Format Journal Article
LanguageEnglish
Published Berlin/Heidelberg Springer 01.07.2018
Springer Berlin Heidelberg
Springer Nature B.V
Subjects
Decision time
Economic models
Economic theory
Economic Theory/Quantitative Economics/Mathematical Methods
Economics
Economics and Finance
Expected utility
Game Theory
Microeconomics
Public Finance
RESEARCH ARTICLE
Social and Behav. Sciences
Utility functions
Weighting
Time invariance
Time consistency
Stationarity
Risk preferences
D81
Intertemporal choice
D91
Time preferences
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Summary: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.
ISSN:0938-2259
1432-0479
DOI:10.1007/s00199-017-1058-8