In the de Finetti-Arrow-Pratt framework, the utility for wealth is assumed to be not changing with time, i.e. utility is timeless. Given that clearly preferences may change with time, in the context of time varying utility of wealth, this paper defines temporal risk aversion in the case of a decision maker who acts as a buyer: temporal risk premium, instantaneous risk premium and time preference premium are studied. Sufficient conditions ensuring temporal risk aversion and a suggestion for a local measure of temporal risk aversion are presented.
Temporal risk aversion: what determines the attitude of the decision maker?The case of the buyer decision maker
FERRETTI, Paola
2008-01-01
Abstract
In the de Finetti-Arrow-Pratt framework, the utility for wealth is assumed to be not changing with time, i.e. utility is timeless. Given that clearly preferences may change with time, in the context of time varying utility of wealth, this paper defines temporal risk aversion in the case of a decision maker who acts as a buyer: temporal risk premium, instantaneous risk premium and time preference premium are studied. Sufficient conditions ensuring temporal risk aversion and a suggestion for a local measure of temporal risk aversion are presented.
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