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Is Intertemporal Choice Theory Testable?

In: Computational Aspects of General Equilibrium Theory

Author

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  • Felix Kubler

    (University of Pennsylvania)

Abstract

Kreps-Porteus preferences constitute a widely used alternative to time separability. We show in this paper that with these preferences utility maximization does not impose any observable restrictions on a household—s savings decisions or on choices in good markets over time. The additional assumption of a weakly separable aggregator is needed to ensure that the assumption of utility maximization restricts intertemporal choices. Under this assumption, choices in spot markets are characterized by a strong axiom of revealed preferences (SSARP). Under uncertainty Kreps-Porteus preferences impose observable restrictions on portfolio choice if one observes the last period of an individual—s planning horizon. Otherwise there are no restrictions.

Suggested Citation

  • Felix Kubler, 2008. "Is Intertemporal Choice Theory Testable?," Lecture Notes in Economics and Mathematical Systems, in: Computational Aspects of General Equilibrium Theory, pages 79-91, Springer.
    • Handle: RePEc:spr:lnechp:978-3-540-76591-2_7
    DOI: 10.1007/978-3-540-76591-2_7
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    Cited by:

    1. is not listed on IDEAS
    2. Ian Crawford, 2007. "A nonparametric analysis of habits models," CeMMAP working papers CWP30/07, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.
    3. Crawford, Ian & Polisson, Matthew, 2014. "Testing for intertemporal nonseparability," Journal of Mathematical Economics, Elsevier, vol. 52(C), pages 46-49.
    4. Angelo Melino & Alan X. Yang, 2003. "State Dependent Preferences Can Explain the Equity Premium Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 806-830, October.
    5. Kubler, Felix & Selden, Larry & Wei, Xiao, 2020. "Incomplete market demand tests for Kreps-Porteus-Selden preferences," Journal of Economic Theory, Elsevier, vol. 185(C).

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