The Role of Time in Making Risky Decisions and the Function of Choice

TL;DR

This paper explores how the timing and frequency of risky decisions influence choices, analyzing classical paradoxes and proposing a new function to model decision-making behavior over time.

Contribution

It introduces a novel choice mapping function that relates two-point random variables to respondent preferences, emphasizing the importance of time and frequency in risky decision-making.

Findings

Time and frequency significantly impact risky choices.

The proposed function models respondent preferences for two-point variables.

Original prospects are formulated as one-time opportunities.

Abstract

The prospects of Kahneman and Tversky, Mega Million and Powerball lotteries, St. Petersburg paradox, premature profits and growing losses criticized by Livermore are reviewed under an angle of view comparing mathematical expectations with awards received. Original prospects have been formulated as a one time opportunity. An award value depends on the number of times the game is played. The random sample mean is discussed as a universal award. The role of time in making a risky decision is important as long as the frequency of games and playing time affect their number. A function of choice mapping properties of two-point random variables to fractions of respondents choosing them is proposed.