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Characterization of variation averse preferences by present value

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  • Keskin, Umut

Abstract

This paper uses Gilboa’s (1989) variation aversion model to examine additive separability in intertemporal decision models. We present a characterization of this model using present values and based on this characterization, we argue that additive separability may not necessarily be rational in some settings. Our method also has the advantage that it allows for testing models by using econometric techniques.

Suggested Citation

  • Keskin, Umut, 2020. "Characterization of variation averse preferences by present value," Economics Letters, Elsevier, vol. 196(C).
    • Handle: RePEc:eee:ecolet:v:196:y:2020:i:c:s0165176520303414
    DOI: 10.1016/j.econlet.2020.109561
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    References listed on IDEAS

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    1. Gilboa, Itzhak, 1989. "Expectation and Variation in Multi-period Decisions," Econometrica, Econometric Society, vol. 57(5), pages 1153-1169, September.
    2. Han Bleichrodt & Umut Keskin & Kirsten I. M. Rohde & Vitalie Spinu & Peter Wakker, 2015. "Discounted Utility and Present Value—A Close Relation," Operations Research, INFORMS, vol. 63(6), pages 1420-1430, December.
    3. Paul A. Samuelson, 1937. "A Note on Measurement of Utility," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 4(2), pages 155-161.
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