From Decision in Risk to Decision in Time - and Return: A Restatement of Probability Discounting

Marc-Arthur Diaye (1) , André Lapidus (2) , Christian Schmidt (2)

1 CES - Centre d'économie de la Sorbonne
2 PHARE - Philosophie, Histoire et Analyse des Représentations Économiques

This paper aims at restating, in a decision theory framework, the results of some signicant contributions of the literature on probability discounting that followed the publication of the pioneering article by Rachlin et al. (1991). We provide a restatement of probability discounting in terms of rank-dependent utility, in which the utilities of the outcomes of n-issues lotteries are weighted by probabilities transformed after their transposition into time-delays. This formalism makes the typical cases of rationality in time and in risk mutually exclusive, but allows looser types of rationality. The resulting attitude toward probability and toward risk are then determined in relation to the values of the two parameters involved in the procedure of probability discounting.

Keywords: Probability discounting; time discounting; logarithmic time perception; rank-dependent utility; rationality; attitude toward probabilities; attitude toward risk

Domains: Humanities and Social Sciences; Economics and Finance

Marc-Arthur Diaye, André Lapidus, Christian Schmidt. From Decision in Risk to Decision in Time - and Return: A Restatement of Probability Discounting. 2021. ⟨hal-03256606⟩