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Lifetime Uncertainty and Time Preference

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  • Nicolas Drouhin

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Abstract

Despite Fisher's (1930) psychological intuitions of and the formal treatment given by Yaari (1965, Review of Economic Studies 32, 137), the intertemporal model of choice is mainly a model with certain lifetime. The purpose of this paper is to reconsider this assumption, starting from a very simple two-period model of choice with lifetime uncertainty. We examine the comparative statics of the model at the first two orders and replace the concept of `pure time preference' by taking into account the subjective treatment of the probability of survival. Copyright Kluwer Academic Publishers 2001

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File URL: http://hdl.handle.net/10.1023/A:1015598809123
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Bibliographic Info

Article provided by Springer in its journal Theory and Decision.

Volume (Year): 51 (2001)
Issue (Month): 2 (December)
Pages: 145-172

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Handle: RePEc:kap:theord:v:51:y:2001:i:2:p:145-172

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Web page: http://www.springerlink.com/link.asp?id=100341

Related research

Keywords: Intertemporal choice; Lifetime uncertainty; Rank dependent utility;

References

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  1. Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
  2. Paul A. Samuelson, 1958. "An Exact Consumption-Loan Model of Interest with or without the Social Contrivance of Money," Journal of Political Economy, University of Chicago Press, vol. 66, pages 467.
  3. Abel, Andrew B, 1985. "Precautionary Saving and Accidental Bequests," American Economic Review, American Economic Association, vol. 75(4), pages 777-91, September.
  4. Yoram Ben-Porath, 1967. "The Production of Human Capital and the Life Cycle of Earnings," Journal of Political Economy, University of Chicago Press, vol. 75, pages 352.
  5. Christian Gollier, 2004. "The Economics of Risk and Time," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262572249, December.
  6. Quiggin, John, 1982. "A theory of anticipated utility," Journal of Economic Behavior & Organization, Elsevier, vol. 3(4), pages 323-343, December.
  7. Karni, Edi & Zilcha, Itzhak, 1989. "Aggregate and distributional effects of fair social security," Journal of Public Economics, Elsevier, vol. 40(1), pages 37-56, October.
  8. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
  9. Nicolas Drouhin, 1997. "Systèmes de retraite et accumulation du capital : un modèle à générations imbriquées avec durée de vie incertaine," Discussion Papers (REL - Recherches Economiques de Louvain) 1997023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
  10. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-47, April.
  11. Luisa Fuster, 2000. "Capital Accumulation in an Economy with Dynasties and Uncertain Lifetimes," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 3(4), pages 650-674, October.
  12. Mohammed Abdellaoui, 2002. "A Genuine Rank-Dependent Generalization of the Von Neumann-Morgenstern Expected Utility Theorem," Econometrica, Econometric Society, vol. 70(2), pages 717-736, March.
  13. Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
  14. Samuelson, Paul A, 1969. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 239-46, August.
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Cited by:
  1. repec:hal:wpaper:halshs-00748662 is not listed on IDEAS
  2. Christophe Hachon, 2010. "Éducation et progressivité des systèmes de retraite. Quand les inégalités face à la mort comptent," Revue économique, Presses de Sciences-Po, vol. 0(4), pages 751-769.
  3. Nicolas Couderc & Nicolas Drouhin & Bruno Ventelou, 2006. "SIDA et croissance économique : le risque d'une « trappe épidémiologique »," Revue d'économie politique, Dalloz, vol. 0(5), pages 697-715.
  4. repec:hal:cesptp:halshs-00748662 is not listed on IDEAS
  5. Christophe Hachon, 2009. "Who Really Benefits from Pension Systems ? When Life Expectancy Matters," Revue d'économie politique, Dalloz, vol. 0(4), pages 613-632.

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