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General Probability‐Time Tradeoff and Intertemporal Risk‐Value Model

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  • Shengxiang She
  • Chaoqun Ma
  • Desheng Dash Wu

Abstract

This article proposes an intertemporal risk‐value (IRV) model that integrates probability‐time tradeoff, time‐value tradeoff, and risk‐value tradeoff into one unified framework. We obtain a general probability‐time tradeoff, which yields a formal representation form to reflect the psychological distance of a decisionmaker in evaluating a temporal lottery. This intuition of probability‐time tradeoff is supported by robust empirical findings as well as by psychological theory. Through an explicit formalization of probability‐time tradeoff, an IRV model taking into account three fundamental dimensions, namely, value, probability, and time, is established. The object of evaluation in our framework is a complex lottery. We also give some insights into the structure of the IRV model using a wildcatter problem.

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  • Shengxiang She & Chaoqun Ma & Desheng Dash Wu, 2010. "General Probability‐Time Tradeoff and Intertemporal Risk‐Value Model," Risk Analysis, John Wiley & Sons, vol. 30(3), pages 421-431, March.
    • Handle: RePEc:wly:riskan:v:30:y:2010:i:3:p:421-431
    DOI: 10.1111/j.1539-6924.2009.01344.x
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