Horizon-Dependent Risk Aversion and the Timing and Pricing of Uncertainty

We address two fundamental critiques of established asset pricing models: that they (1) require a controversial degree of preference for early resolution of uncertainty; and (2) do not match the term structures of risk premia observed in the data. Inspired by experimental evidence, we construct preferences in which risk aversion decreases with the temporal horizon. The resulting model implies term structures of risk premia consistent with the evidence, including timevariations and reversals in the slope, without imposing a particular preference for early or late resolutions of uncertainty or compromising on the ability to match standard moments in the returns distributions.