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Solutions For Some Dynamic Problems With Uncertainty Aversion

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  • Hiroyuki Ozaki
  • Peter A. Streufert

Abstract

In a discounted expected‐utility problem, tomorrow's utilities are aggregated across tomorrow's states by the expectation operator. In our problems, this aggregation is accomplished by a Choquet integral of the form ∫u dPα, where α specifies uncertainty aversion. We solve all finite‐state problems by either a closed form or a finite‐dimensional iteration, and show that uncertainty aversion reduces the perceived return on investment, thereby decreasing the saving rate given elastic preferences and increasing the saving rate given inelastic preferences. JEL Classification Numbers: C61, D81, D9.

Suggested Citation

  • Hiroyuki Ozaki & Peter A. Streufert, 2001. "Solutions For Some Dynamic Problems With Uncertainty Aversion," The Japanese Economic Review, Japanese Economic Association, vol. 52(3), pages 251-283, September.
    • Handle: RePEc:bla:jecrev:v:52:y:2001:i:3:p:251-283
    DOI: 10.1111/1468-5876.00194
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    Cited by:

    1. Kiyohiko G. Nishimura & Hiroyuki Ozaki, 2014. "Liquidity Preference And Knightian Uncertainty," CARF F-Series CARF-F-337, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.

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    More about this item

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D9 - Microeconomics - - Micro-Based Behavioral Economics

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