A Stream of Prospects or a Prospect of Streams: On the Evaluation of Intertemporal Risks
Recent debate has identified important gaps in the understanding of intertemporal risks. Critical to closing these gaps is evidence on which dimension of intertemporal risk – the risk or the time – is evaluated first. Though under discounted expected utility this ordering is of no consequence, under discounted non-expected utility models the order of evaluation is critical. We provide experimental tests in which different orderings of evaluation generate different predictions for behavior. We find more support for the notion that the risk dimension is evaluated first.
We are grateful to Mark Machina, Yoram Halevy, Levon Barseghyan, P.J. Healy, Marina Agranov, and conference participants at the American Social Science Association Annual Meeting and the Southwest Experimental and Behavioral Economics Conference. Andreoni also thanks the National Science Foundation for financial support. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.