UNCERTAIN LIFETIME AND INTERTEMPORAL CHOICE: RISK AVERSION AS A RATIONALE FOR TIME DISCOUNTING*

Antoine Bommier

175 citations0/0 files storedInternational Economic Review

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Decision-Making and Behavioral Economics Financial Literacy, Pension, Retirement Analysis Economic theories and models

Abstract

This article makes explicit the links between preferences over lotteries on length of life and intertemporal choice. It shows that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to length of life. Relaxing such an assumption leads us to develop a more general formulation of lifetime utility in which time discounting is directly related to preferences over length of life. Exponential and hyperbolic discounting are found to result, in a first approximation, from constant and hyperbolic risk aversion with respect to length of life.

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References

1997Golden Eggs and Hyperbolic Discounting 1928A Mathematical Theory of Saving 1965Uncertain Lifetime, Life Insurance, and the Theory of the Consumer 1955Myopia and Inconsistency in Dynamic Utility Maximization 1973Myopia and Inconsistency in Dynamic Utility Maximization 1987The Dual Theory of Choice under Risk 1992Anomalies in Intertemporal Choice: Evidence and an Interpretation 1997The Endogenous Determination of Time Preference

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2010Aggressive oil extraction and precautionary saving: Coping with volatility 2012Health and (Other) Asset Holdings 2010Time-Tradeoff Sequences for Analyzing Discounting and Time Inconsistency 2010Non-parametric test of time consistency: Present bias and future bias 2009SIMULTANEOUS MEASUREMENT OF TIME AND RISK PREFERENCES: STATED PREFERENCE DISCRETE CHOICE MODELING ANALYSIS DEPENDING ON SMOKING BEHAVIOR*2013Is There One Unifying Concept of Utility?An Experimental Comparison of Utility Under Risk and Utility Over Time

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