Title: Empirical evidence of a preference for uncertainty in intertemporal risky prospects

Authors: Viviana Ventre; Roberta Martino; Francesco Panico; Laura Sagliano; Luigi Valio; Luigi Trojano

Addresses: Department of Mathematics and Physics, University of Campania 'L. Vanvitelli', Viale A. Lincoln, 5 – 81100 Caserta, Italy ' Department of Mathematics and Physics, University of Campania 'L. Vanvitelli', Viale A. Lincoln, 5 – 81100 Caserta, Italy ' Department of Psychology, University of Campania 'L. Vanvitelli', Viale A. Lincoln, 5 – 81100 Caserta, Italy ' Department of Psychology, University of Campania 'L. Vanvitelli', Viale A. Lincoln, 5 – 81100 Caserta, Italy ' Department of Psychology, University of Campania 'L. Vanvitelli', Viale A. Lincoln, 5 – 81100 Caserta, Italy ' Department of Psychology, University of Campania 'L. Vanvitelli', Viale A. Lincoln, 5 – 81100 Caserta, Italy

Abstract: Recent studies suggest that uncertainty should be added to the risk to evaluate financial decisions. The present study examines the interaction between uncertainty and subjective probability in risk evaluation. Subjective probability relates to an individual's confidence in event occurrence. To explore the impact of different temporal perspectives on the perception of probability, random probabilities are assessed over different time frames. Empirical data and modelling validate that subjective probability varies over time, aligning with the non-rationality behaviour observed in hyperbolic discounting. Notably, applying the belief function theory formalises the link between a steeper discount function and choosing 'larger later' options in risky intertemporal prospects. Remarkably, results unveil a 'preference for uncertainty', where individuals exhibit greater patience in pursuing rewards. This experimental approach improves the qualitative and quantitative understanding of the risk-uncertainty dynamic.

Keywords: behavioural finance; delay discounting; financial decision-making; FDM; hyperbolic discounting; impatience; imprecise probability; intertemporal choice; intertemporal prospect theory risk; subjective probability; uncertainty.

DOI: 10.1504/IJADS.2025.145885

International Journal of Applied Decision Sciences, 2025 Vol.18 No.3, pp.305 - 329

Received: 27 Sep 2023
Accepted: 08 Oct 2023
Published online: 30 Apr 2025 *

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