Preferences on discounting under time risk

Abstract

This paper examines the linkages between different aspects of a decision maker’s attitude towards risk in the presence of time risk. Our results suggest that certain combinations of aspects of preferences towards risk are incoherent, supporting the idea that preferences exhibit risk-seeking, prudent, intemperate and antimixed risk-averse discounting, at least starting from a certain time horizon. Consequently, we observe that, unlike the case of risky outcome, in the presence of risky time, a decision maker usually prefers “combining good with good” rather than “combining good with bad”. We extend our analysis considering the implications of our findings on the decision maker’s attitude towards changes in risk of different degrees and uncertainty in the variance. Lastly, applications to saving for delayed expenditures and to investments under delayed risks are provided.