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Intertemporal choice under timing risk: An experimental approach

Selçuk Onay and Ayse Öncüler
Journal of Risk and Uncertainty
Vol. 34, No. 2 (February 2007), pp. 99-121
Published by: Springer
Stable URL: http://www.jstor.org/stable/41761256
Page Count: 23
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Intertemporal choice under timing risk: An experimental approach
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Abstract

This paper investigates how individuals evaluate delayed outcomes with risky realization times. Under the discounted expected utility (DEU) model, such evaluations depend only on intertemporal preferences. We obtain several testable hypotheses using the DEU model as a benchmark and test these hypotheses in three experiments. In general, our results show that the DEU model is a poor predictor of intertemporal choice behavior under timing risk. We found that individuals are averse to timing risk and that they evaluate timing lotteries in a rank-dependent fashion. The main driver of timing risk aversion is nothing but probabilistic risk aversion that stems from the nonlinear treatment of probabilities.

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