Abstract
Expected exponentially-discounted utility (EEDU) is the standard model of choice over risk and time in economics. This paper considers the dynamic preference foundations of EEDU in the timed risks framework. We first provide dynamic preference foundations for a time-invariant expected utility representation. The new axioms for this are called foregone-risk independence and strong time invariance. This class of dynamic preferences includes EEDU as a special case. If foregone-risk independence is strengthened to a new condition called conditional consistency, then an EEDU representation results. Alternative approaches for extending exponential discounting axioms to risk are considered, resulting in five new preference foundations of EEDU.
Original language | English |
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Number of pages | 20 |
Journal | Economic Theory |
Early online date | 6 Oct 2023 |
DOIs | |
Publication status | E-pub ahead of print - 6 Oct 2023 |
Keywords
- Risk and time preferences
- Expected utility
- Discounted utility
- Preference axioms