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Weighted Temporal Utility

Author

Listed:
  • Anke Gerber

    (University of Hamburg, Germany)

  • Kirsten I.M. Rohde

    (Erasmus University Rotterdam, the Netherlands)

Abstract

We propose a utility representation for preferences over risky timed outcomes, the weighted temporal utility model. It separates subjective evaluations of outcomes from attitudes towards psychological distance induced by risks and delays. Subjective evaluations of outcomes may depend on the time of receipt. A natural special case of our model arises when decision makers evaluate an outcome according to the extra utility it generates on top of expected baseline consumption, which can be interpreted as the status quo. Thus, deviations from stationarity can be driven by expected changes in baseline consumption, and need not be irrational. Moreover, a decision maker with a weighted temporal utility function can have time-consistent yet non-stationary preferences or stationary yet time-inconsistent preferences. We provide a characterization of our model and propose a non-parametric approach to elicit a weighted temporal utility function.

Suggested Citation

  • Anke Gerber & Kirsten I.M. Rohde, 2013. "Weighted Temporal Utility," Tinbergen Institute Discussion Papers 13-167/1, Tinbergen Institute, revised 20 Nov 2014.
    • Handle: RePEc:tin:wpaper:20130167
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    References listed on IDEAS

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    Cited by:

    1. Gerber, Anke & Rohde, Kirsten I.M., 2015. "Eliciting discount functions when baseline consumption changes over time," Journal of Economic Behavior & Organization, Elsevier, vol. 116(C), pages 56-64.

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    More about this item

    Keywords

    Intertemporal choice; stationarity; time consistency;
    All these keywords.

    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

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