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Weighted temporal utility

Author

Listed:
  • Anke Gerber

    (Universität Hamburg)

  • Kirsten I. M. Rohde

    (Erasmus University Rotterdam
    Erasmus Research Institute of Management and Tinbergen Institute)

Abstract

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.

Suggested Citation

  • Anke Gerber & Kirsten I. M. Rohde, 2018. "Weighted temporal utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 66(1), pages 187-212, July.
    • Handle: RePEc:spr:joecth:v:66:y:2018:i:1:d:10.1007_s00199-017-1058-8
    DOI: 10.1007/s00199-017-1058-8
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    References listed on IDEAS

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    More about this item

    Keywords

    Intertemporal choice; Time preferences; Risk preferences; Stationarity; Time consistency; Time invariance;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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