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Higher-order risk preferences over wealth and time: Theory and behavioral consistency

Author

Listed:
  • Hannah H. Chen

    (Department of Finance, National Central University)

  • Cary Deck

    (Department of Economics, University of Alabama & Economic Science Institute, Chapman University)

  • Rachel J. Huang

    (Department of Finance, National Central University)

  • Larry Y. Tzeng

    (Department of Finance, National Taiwan University)

  • Lin Zhao

    (School of Business Administration, Southwestern University of Finance and Economics)

Abstract

Economic decisions often involve uncertainty in both wealth and time. We introduce an axiom requiring the trade-of between wealth and time to remain invariant across both domains. Together with standard axioms, it characterizes Expected Additive Time-Wealth Utility (EATWU). We provide an alternative characterization based on consistency in higher-order risk preferences and extend risk apportionment to decisions involving wealth, time, and both. Our model predicts consistent risk allocations across these domains within each order. A laboratory experiment examining second-, third-, and fourth-order risk preferences fnds systematic relationships across domains that are broadly consistent with the model’s predictions.

Suggested Citation

  • Hannah H. Chen & Cary Deck & Rachel J. Huang & Larry Y. Tzeng & Lin Zhao, 2026. "Higher-order risk preferences over wealth and time: Theory and behavioral consistency," Working Papers 26-13, Chapman University, Economic Science Institute.
    • Handle: RePEc:chu:wpaper:26-13
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    File URL: https://digitalcommons.chapman.edu/esi_working_papers/444/
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    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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