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Risk aversion, impatience, and optimal timing decisions

Authors
Journal
Journal of Economic Theory
0022-0531
Publisher
Elsevier
Publication Date
Volume
11
Issue
2
Identifiers
DOI: 10.1016/0022-0531(75)90013-7

Abstract

Abstract In this paper, a theory measuring a decision maker's aversion to temporal risks is developed in the context of a simple choice framework that admits the interpretation “time varying utility of wealth.” A relation “more temporally risk averse” is defined and characterized in terms of instantaneous risk aversion (the usual single variable case) and impatience. A further characterization of this relation is obtained in the context of a class of action timing problems known as optimal stopping problems and is applied to preference based investigations of information production, incentives to innovate, and job search.

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