Sooner or Safer: How Do People Balance Risk Against Time?

Intertemporal and risky choices are two very important research streams in the behavioral literature. They both have received a lot of attention, especially since recurrent anomalies have been discovered with respect to Constant Discounting and Expected Utility models respectively. Prelec and Loewenstein (1991) have put forward that similar behavioral drivers may be operating behind risk and delays and have presented what they called a “common approach”. Keren and Roelofsma (1995) went beyond, showing that risk and delays, due to cross effects, must be considered jointly, in an integrated way. In this context, to construct a performant model of decision making allowing for both risk and delay, it is highly relevant to determine how people balance risk against time. An important integrated model, the Probability-Time Trade-Off Model, assumes that this trade-off is constant (Baucells and Heukamp, 2012). This paper challenges the constant trade-off assumption out of consistency with previous findings and presents an alternative theoretical hypothesis. It also sketches an empirical pilot test of this alternative. Its results give ground for the alternative even if they are not statistically significant, reinforcing the critic of the probability-time constant trade-off hypothesis.