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Uncertain Lifetime And Intertemporal Choice: Risk Aversion As A Rationale For Time Discounting

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  • Antoine Bommier

Abstract

This article makes explicit the links between preferences over lotteries on length of life and intertemporal choice. It shows that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to length of life. Relaxing such an assumption leads us to develop a more general formulation of lifetime utility in which time discounting is directly related to preferences over length of life. Exponential and hyperbolic discounting are found to result, in a first approximation, from constant and hyperbolic risk aversion with respect to length of life. Copyright 2006 by the Economics Department Of The University Of Pennsylvania And Osaka University Institute Of Social And Economic Research Association.

Suggested Citation

  • Antoine Bommier, 2006. "Uncertain Lifetime And Intertemporal Choice: Risk Aversion As A Rationale For Time Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1223-1246, November.
  • Handle: RePEc:ier:iecrev:v:47:y:2006:i:4:p:1223-1246
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    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
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income

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