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A Time-Inconsistent Equilibrium Model

Author

Listed:
  • Tomas Björk

    (Stockholm School of Economics)

  • Mariana Khapko

    (University of Toronto)

  • Agatha Murgoci

    (Ørsted)

Abstract

In this chapter we consider the equilibrium model from Chap. 4 , which is a discrete-time simplified version of the Cox–Ingersoll–Ross type of economy. We now assume, however, that the representative agent has time-inconsistent preferences. The time inconsistency enters the problem via time- and state-dependence of the agent’s utility function. Loosely speaking, when standing today and making decisions about the future, the preference ordering of the decision maker is allowed to depend on the current state and the current time. In this setting we study both the agent’s problem (intrapersonal equilibrium) and the pricing implications (market equilibrium).

Suggested Citation

Handle: RePEc:spr:sprfcp:978-3-030-81843-2_10
DOI: 10.1007/978-3-030-81843-2_10
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