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Time discounting under uncertainty

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  • Lorenzo Bastianello
  • Jos'e Heleno Faro

Abstract

We study intertemporal decision making under uncertainty. We fully characterize discounted expected utility in a framework \`a la Savage. Despite the popularity of this model, no characterization is available in this setting. The concept of stationarity, introduced by Koopmans for deterministic discounted utility, plays a central role for both attitudes towards time and towards uncertainty. We show that a strong stationarity axiom characterizes discounted expected utility. When hedging considerations are taken into account, a weaker stationarity axiom generalizes discounted expected utility to Choquet discounted expected utility, allowing for non-neutral attitudes towards uncertainty.

Suggested Citation

  • Lorenzo Bastianello & Jos'e Heleno Faro, 2019. "Time discounting under uncertainty," Papers 1911.00370, arXiv.org, revised Mar 2020.
    • Handle: RePEc:arx:papers:1911.00370
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    References listed on IDEAS

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