Intertemporal Uncertainty Avoidance: When the Future is Uncertain, People Prefer the Present, and When the Present is Uncertain, People Prefer the Future

24 Pages Posted: 5 Sep 2015

See all articles by David J. Hardisty

David J. Hardisty

Sauder School of Business

Jeffrey Pfeffer

Stanford Graduate School of Business

Date Written: September 5, 2015

Abstract

Three studies explored the effects of uncertainty on people’s time preferences for financial gains and losses. In general, individuals seek to avoid uncertainty in situations of intertemporal choice. While holding the expected value of payouts constant, participants preferred immediate gains and losses if the future was uncertain, and preferred future gains and losses if the present was uncertain. This pattern of preferences is incompatible with current models of intertemporal choice, in which people should consistently prefer to have gains now and losses later. This pattern of uncertainty avoidance is also not explained by Prospect Theory models, which predict risk seeking for losses. We discuss these findings in relation to previous literature.

Keywords: intertemporal choice, uncertainty, risk, decision making, losses

Suggested Citation

Hardisty, David J. and Pfeffer, Jeffrey, Intertemporal Uncertainty Avoidance: When the Future is Uncertain, People Prefer the Present, and When the Present is Uncertain, People Prefer the Future (September 5, 2015). Stanford University Graduate School of Business Research Paper No. 15-49, Available at SSRN: https://ssrn.com/abstract=2656662 or http://dx.doi.org/10.2139/ssrn.2656662

Jeffrey Pfeffer

Stanford Graduate School of Business ( email )

655 Knight Way
Stanford, CA 94305-5015
United States

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