Risk aversion, impatience, and optimal timing decisions☆
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.