Seminar details
BENC seminar, 14 September, 2015, 4:30pm, NUBS 104
Speaker: Dr Jinrui Pan, Durham University
Topic: Separating Risk and Time Preferences: Discounted Utility with Increasing Optimism
Date & Time: 14th September, Monday, 4:30-6:00 PM
Venue: Newcastle University Business School 104,
5 Barrack Road, Newcastle upon Tyne, NE1 4SE
Abstract: This paper proposes an axiomatic model featuring a differential treatment of attitudes towards risk and time. Such distinction has been strongly suggested by experimental research when studying intertemporal choice, since the future is inherently risky. In the proposed model, non-linear probability distortions are incorporated into a dynamic model with discounted utility. Time is captured by a general discounting function independent of probabilities and outcomes. Utility of outcomes is captured by standard vNM utility independent of time.
A two-parameter probability weighting function captures intertemporal probabilistic risk attitudes, with one parameter being constant over time, the other being time-dependent. An index of optimism is derived that depends on both parameters, which allows the observed high risk tolerance for delayed lotteries to be modelled. Further, a preference foundation is provided. Interestingly, the model allows behaviour to be consistent with discounted expected utility, when risk is sufficiently distant from the present.
Last modified: Fri, 11 Sep 2015 15:14:31 BST