Generalized stochastic differential utility and preference for information
This paper develops, in a Brownian information setting, an approach for analyzing the preference for information, a question that motivates the stochastic differential utility (SDU) due to Duffie and Epstein [Econometrica 60 (1992) 353-394]. For a class of backward stochastic differential equations (BSDEs) including the generalized SDU [Lazrak and Quenez Math. Oper. Res. 28 (2003) 154-180], we formulate the information neutrality property as an invariance principle when the filtration is coarser (or finer) and characterize it. We also provide concrete examples of heterogeneity in information that illustrate explicitly the nonneutrality property for some GSDUs. Our results suggest that, within the GSDUs class of intertemporal utilities, risk aversion or ambiguity aversion are inflexibly linked to the preference for information.
|Date of creation:||Mar 2005|
|Date of revision:|
|Publication status:||Published in Annals of Applied Probability 2004, Vol. 14, No. 4, 2149-2175|
|Contact details of provider:|| Web page: http://arxiv.org/|
References listed on IDEAS
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- Zengjing Chen & Larry Epstein, 2002.
"Ambiguity, Risk, and Asset Returns in Continuous Time,"
Econometric Society, vol. 70(4), pages 1403-1443, July.
- Zengjing Chen & Larry G. Epstein, 2000. "Ambiguity, risk and asset returns in continuous time," RCER Working Papers 474, University of Rochester - Center for Economic Research (RCER).
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- Frank Riedel, 2003.
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Cowles Foundation Discussion Papers
1114, Cowles Foundation for Research in Economics, Yale University.
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- Duffie, Darrell & Epstein, Larry G, 1992. "Stochastic Differential Utility," Econometrica, Econometric Society, vol. 60(2), pages 353-94, March.
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