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Intertemporal substitution, risk aversion and ambiguity aversion

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  • Takashi Hayashi

Abstract

This paper axiomatizes a form of recursive utility on consumption processes that permits a role for ambiguity as well as risk. The model has two prominent special cases: (i) the recursive model of risk preference due to Kreps and Porteus [18]; and (ii) an intertemporal version of multiple-priors utility due to Epstein and Schneider [8]. The generalization presented here permits a three-way separation of intertemporal substitution, risk aversion and ambiguity aversion. Copyright Springer-Verlag Berlin/Heidelberg 2005

Suggested Citation

  • Takashi Hayashi, 2005. "Intertemporal substitution, risk aversion and ambiguity aversion," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 25(4), pages 933-956, June.
    • Handle: RePEc:spr:joecth:v:25:y:2005:i:4:p:933-956
    DOI: 10.1007/s00199-004-0508-2
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    Citations

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    Cited by:

    1. Klibanoff, Peter & Marinacci, Massimo & Mukerji, Sujoy, 2009. "Recursive smooth ambiguity preferences," Journal of Economic Theory, Elsevier, vol. 144(3), pages 930-976, May.
    2. Johanna Etner & Meglena Jeleva & Jean‐Marc Tallon, 2012. "Decision Theory Under Ambiguity," Journal of Economic Surveys, Wiley Blackwell, vol. 26(2), pages 234-270, April.
    3. Maccheroni, Fabio & Marinacci, Massimo & Rustichini, Aldo, 2006. "Dynamic variational preferences," Journal of Economic Theory, Elsevier, vol. 128(1), pages 4-44, May.
    4. Norio Takeoka & Takashi Ui, 2021. "Imprecise Information and Second-Order Beliefs," Working Papers on Central Bank Communication 037, University of Tokyo, Graduate School of Economics.
    5. Spyros Galanis, 2021. "Dynamic consistency, valuable information and subjective beliefs," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1467-1497, June.
    6. Tommi Ekholm & Erin Baker, 2022. "Multiple Beliefs, Dominance and Dynamic Consistency," Management Science, INFORMS, vol. 68(1), pages 529-540, January.
    7. Eric André & Antoine Bommier & François Le Grand, 2022. "The impact of risk aversion and ambiguity aversion on annuity and saving choices," Journal of Risk and Uncertainty, Springer, vol. 65(1), pages 33-56, August.
    8. Michèle Cohen & Johanna Etner & Meglena Jeleva, 2008. "Dynamic Decision Making when Risk Perception Depends on Past Experience," Theory and Decision, Springer, vol. 64(2), pages 173-192, March.
    9. Robert Nau, 2011. "Risk, ambiguity, and state-preference theory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 48(2), pages 437-467, October.
    10. , & ,, 2015. "Hidden actions and preferences for timing of resolution of uncertainty," Theoretical Economics, Econometric Society, vol. 10(2), May.
    11. Katsutoshi Wakai, 2015. "Recursive extension of a multicommodity analysis," Economic Theory Bulletin, Springer;Society for the Advancement of Economic Theory (SAET), vol. 3(2), pages 271-285, October.
    12. Flynn, Joel P. & Schmidt, Lawrence D. W. & Toda, Alexis Akira, 2023. "Robust comparative statics for the elasticity of intertemporal substitution," Theoretical Economics, Econometric Society, vol. 18(1), January.
    13. , & ,, 2007. "Updating preferences with multiple priors," Theoretical Economics, Econometric Society, vol. 2(3), September.
    14. Zhao, Guihai, 2017. "Confidence, bond risks, and equity returns," Journal of Financial Economics, Elsevier, vol. 126(3), pages 668-688.
    15. Wang, Jessie J. & Lalwani, Ashok K. & DelVecchio, Devon, 2022. "The Impact of Power Distance Belief on Consumers' Brand Preferences," International Journal of Research in Marketing, Elsevier, vol. 39(3), pages 804-823.
    16. Martin Schneider, 2010. "The Research Agenda: Martin Schneider on Multiple Priors Preferences and Financial Markets," EconomicDynamics Newsletter, Review of Economic Dynamics, vol. 11(2), April.
    17. Ghosh, Gagan & Liu, Heng, 2021. "Sequential auctions with ambiguity," Journal of Economic Theory, Elsevier, vol. 197(C).
    18. Katsutoshi Wakai, 2013. "Intertemporal utility smoothing under uncertainty," Theory and Decision, Springer, vol. 74(2), pages 285-310, February.
    19. Julian Thimme, 2017. "Intertemporal Substitution In Consumption: A Literature Review," Journal of Economic Surveys, Wiley Blackwell, vol. 31(1), pages 226-257, February.

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