Valuing life under the shadow of death : on stationary lifetime preferences under uncertainty

This paper develops an axiomatic construction of preferences that allows to compare lotteries involving lives of different lengths. Our axioms which basically formalize two assumptions - individuals are rational and have stationary preferences - leads to a class of utility functions that is much larger than the set of separable additive utility functions. We discuss a number of appealing properties associated with non additive utility functions and explore the implications for life cycle behavior. The results lead to a fundamental shift in how the risk of death may be expected to affect intertemporal choices. In particular, the rate of time discounting is shown to be related to mortality and to the way life is valued. This explains why "impatience" may significantly vary along the life cycle as well as why it may change with time during periods of mortality decline. Reciprocally, information on the value of life can also be derived from the variation of the rate of time discounting.