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Risk Preferences in Time Lotteries

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  • Yonatan Berman
  • Mark Kirstein

Abstract

An important but understudied question in economics is how people choose when facing uncertainty in the timing of events. Here we study preferences over time lotteries, in which the payment amount is certain but the payment time is uncertain. Expected discounted utility theory (EDUT) predicts decision makers to be risk-seeking over time lotteries. We explore a normative model of growth-optimality, in which decision makers maximise the long-term growth rate of their wealth. Revisiting experimental evidence on time lotteries, we find that growth-optimality accords better with the evidence than EDUT. We outline future experiments to scrutinise further the plausibility of growth-optimality.

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  • Yonatan Berman & Mark Kirstein, 2021. "Risk Preferences in Time Lotteries," Papers 2108.08366, arXiv.org.
    • Handle: RePEc:arx:papers:2108.08366
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    References listed on IDEAS

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    1. Ole Peters & Murray Gell-Mann, 2014. "Evaluating gambles using dynamics," Papers 1405.0585, arXiv.org, revised Jun 2015.
    2. Alexander T. I. Adamou & Yonatan Berman & Diomides P. Mavroyiannis & Ole B. Peters, 2019. "Microfoundations of Discounting," Papers 1910.02137, arXiv.org, revised Jan 2020.
    3. Ole Peters & Alexander Adamou, 2018. "The time interpretation of expected utility theory," Papers 1801.03680, arXiv.org, revised Feb 2021.
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    Cited by:

    1. Sebastian Ebert, 2021. "Prudent Discounting: Experimental Evidence On Higher Order Time Risk Preferences," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(4), pages 1489-1511, November.

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