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Aversion for early death and the structure of time preference

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Abstract

This papers provides an explanation for time preference: we show that in the case of uncertain lifetime, future consumption should be weighted not only according to survival probability, but also according to a discount factor due to risk aversion with respect to the length of life. When individuals are not risk neutral, this discount factor is generally not exponential. Time inconsistent preferences may therefore appear as a consequence of risk aversion with respect to the length of life. Simulations based on plausible utility for life years and on realistic mortality patterns provide in fact a strong support for hyperbolic discounting.

Suggested Citation

  • Antoine Bommier, 2001. "Aversion for early death and the structure of time preference," Research Unit Working Papers 0106, Laboratoire d'Economie Appliquee, INRA.
  • Handle: RePEc:lea:leawpi:0106
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    File URL: http://www.inra.fr/Internet/Departements/ESR/UR/lea/documents/wp/wp0106.pdf
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    Keywords

    Intertemporal choice; life cycle model; uncertain lifetime; time inconsistency; hyperbolic discounting; utility for life years.;

    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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