Temporal von Neumann-Morgenstern and Induced Preferences

Induced preference in dynamic contexts, such as preference for uncertain income streams induced from preference for consumption streams, typically does not have an expected utility representation. Earlier resolution of uncertainty is preferred for planning purposes, and the standard von Neumann- Morgenstern substitution axiom may fail for uncertainty resolving at a single date. Temporal von Neumann-Morgenstern preference relations can encompass the first effect but not the second. We establish necessary and sufficient conditions for induced preference to be temporal von Neumann- Morgenstern, and we consider how well induced preference is approximated by temporal von Neumann-Morgenstern preference when those conditions are not met.