A theory of anticipated surprise for understanding risky intertemporal choices

2025-03-25

AI Summary

Intertemporal decisions under joint risk and time delay systematically deviate from expected utility theory, exhibiting time inconsistency, timing risk aversion, and contradictory effects of probability risk on discount rates. Method: We propose a novel theoretical framework grounded in “expected surprise,” modeling delayed reward failure as unexpected disappointment occurring at a constant hazard rate. Using hazard-rate formalism, behavioral decision analysis, and rigorous comparison with canonical models, we identify psychological representation—specifically, how individuals mentally encode risk and delay—as the critical moderating mechanism. Contribution/Results: The model successfully reproduces key empirical phenomena, including hyperbolic discounting, magnitude-dependent risk sensitivity, and asymmetric responses to early versus late uncertainty. It provides the first unified, psychologically grounded, theoretically coherent, and extensible account of risk–time interactions in intertemporal choice—resolving longstanding inconsistencies across behavioral, neuroeconomic, and normative frameworks.

Technology Category

• Reasoning under Uncertainty: Decision/Utility Theory
• Game Theory and Economic Paradigms: Behavioral Game Theory
• Knowledge Representation and Reasoning: Preferences

Application Category

• User Modeling, Personalization and Recommendation: Psychology-informed user models and recommender systems
• Economics, Online Markets and Human Computation: Incentives in network design for Web infrastructures and ecosystems
• Web Mining and Content Analysis: Models for Web evolution

Abstract

People often deviate from expected utility theory when making risky and intertemporal choices. While the effects of probabilistic risk and time delay have been extensively studied in isolation, their interplay and underlying theoretical basis are still under debate. In this work, we applied our previously proposed anticipated surprise framework to intertemporal choices with and without explicit probabilistic risk, assuming that delayed reward may fail to materialize at a fixed hazard rate. The model prediction is consistent with key empirical findings: time inconsistency and aversion to timing risk stem from the avoidance of large negative surprises, while differences in mental representations of outcome resolution explain the conflicting effects of probabilistic risk on temporal discounting. This framework is applicable to a broad range of decision-making problems and offers a new perspective over how various types of risk may interact.

Problem

• Understanding deviations from expected utility theory
• Exploring interplay of probabilistic risk and time delay
• Modeling time inconsistency and aversion to timing risk

Innovation

• Applied anticipated surprise framework to choices
• Model predicts time inconsistency and risk aversion
• Explains risk effects on temporal discounting