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UNCERTAIN LIFETIME AND INTERTEMPORAL CHOICE: RISK AVERSION AS A RATIONALE FOR TIME DISCOUNTING *
Author(s) -
Bommier Antoine
Publication year - 2006
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2006.00411.x
Subject(s) - hyperbolic discounting , discounting , economics , intertemporal choice , risk aversion (psychology) , time preference , constant (computer programming) , econometrics , dynamic inconsistency , mathematical economics , microeconomics , expected utility hypothesis , computer science , finance , programming language
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.