In this paper : a) the consumer’s problem is studied over two periods, the second one involving S states, and the consumer being endowed with S+1 incomes and having access to N financial assets; b) the consumer is then representable by a continuously differentiable system of demands, commodity demands, asset demands and desirabilities of incomes (the S+1 Lagrange multiplier of the S+1 constraints); c) the multipliers can be transformed into subjective Arrow prices; d) the effects of the various incomes on these Arrow prices decompose into a compensation effect (an Antonelli matrix) and a wealth effect; e) the Antonelli matrix has rank S-N, the dimension of incompleteness, if the consumer can financially adjust himself when facing income shocks; f) the matrix has rank S, if not; g) in the first case, the matrix represents a residual aversion; in the second case, a fundamental aversion; the difference between them is an aversion to illiquidity; this last relation corresponds to the Drèze-Modigliani decomposition (1972); h) the fundamental aversion decomposes also into an aversion to impatience and a risk aversion; i) the above decompositions span a third decomposition; if there exists a sure asset (to be defined, the usual definition being too specific), the fundamental aversion admits a three-component decomposition, an aversion to impatience, a residual aversion and an aversion to the illiquidity of risky assets; j) the formulas of the corresponding financial premiums are also presented.
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Paper provided by Centre interuniversitaire de recherche en économie quantitative, CIREQ in its series Cahiers de recherche with number
04-2003.
ALLARD, Marie & BRONSARD, Camille & GOURIÉROUX Christian, 2003.
"Aversion Analysis,"
Cahiers de recherche
2003-06, Universite de Montreal, Departement de sciences economiques.
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References listed on IDEAS Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
Larry Epstein & Martin Schneider, 2006.
"Learning Under Ambiguity,"
RCER Working Papers
527, University of Rochester - Center for Economic Research (RCER).
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Other versions:
Larry Epstein & Martin Schneider, 2002.
"Learning Under Ambiguity,"
RCER Working Papers
497, University of Rochester - Center for Economic Research (RCER), revised Mar 2005.
[Downloadable!]
Larry G. Epstein & Martin Schneider, 2001.
"Recursive Multiple-Priors,"
RCER Working Papers
485, University of Rochester - Center for Economic Research (RCER).
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