Risky Intertemporal Choice with Multiple Outcomes and Individual Differences

AbstractRisk and delay co-occur. Intertemporal choices are rarely certain; risky choices are rarely atemporal. Behavioral evidence suggests that risk and time are entangled: time discounting is different for risky outcomes than for riskless outcomes. A prominent model of risky intertemporal choice (Baucells & Heukamp, 2012) combines risk and delay into psychological distance. It predicts that risk and time will be entangled for outcome risk (risk with one zero outcome and at least one positive outcome) but not for amount risk (risk with three or more positive outcomes) unless assuming non-cumulative probability weights. We show that BH does not quantitatively fit risky intertemporal choices better than a model assuming risk and time are independent. Many participants were best fit by a random response model. The functional form for risky intertemporal choices is difficult to detect. While risk and time are entangled, they do not seem to be evaluated as psychological distance.

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