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Risk premiums for time risk under GEDU preferences

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  • Nishiwaki, Takashi
  • Osaki, Yusuke

Abstract

This study investigates decision-makers’ attitudes in situations involving both payoff and time risks, with particular emphasis on time risk. In the Generalized Expected Discounted Utility (GEDU) model proposed by DeJarnette et al. (2020), preferences over time risk t̃ and payoff risk x̃ are represented by the triple (u,β,ϕ) through the functional form Eϕβt̃u(x̃). Using this specification, we introduce the concept of a risk premium for time risk, which reflects either risk aversion or risk seeking over time lotteries (RATL or RSTL, respectively). Furthermore, we show that the magnitude of this risk premium corresponds to −ϕ′′(z)z/ϕ′(z), which reflects the relative risk aversion of ϕ.

Suggested Citation

  • Nishiwaki, Takashi & Osaki, Yusuke, 2025. "Risk premiums for time risk under GEDU preferences," Economics Letters, Elsevier, vol. 257(C).
    • Handle: RePEc:eee:ecolet:v:257:y:2025:i:c:s016517652500521x
    DOI: 10.1016/j.econlet.2025.112684
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    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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