Dynamic Variational Preferences
We introduce and axiomatize dynamic variational preferences, the dynamic version of the variational preferences we axiomatized in [21], which generalize the multiple priors preferences of Gilboa and Schmeidler [9], and include the Multiplier Preferences inspired by robust control and first used in macroeconomics by Hansen and Sargent (see [11]), as well as the classic Mean Variance Preferences of Markovitz and Tobin. We provide a condition that makes dynamic variational preferences time consistent, and their representation recursive. This gives them the analytical tractability needed in macroeconomic and financial applications. A corollary of our results is that Multiplier Preferences are time consistent, but Mean Variance Preferences are not.
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| Length: | 37 pages |
| Date of creation: | 2006 |
| Date of revision: | |
| Publication status: | Published in Journal of Economic Theory, 128, 4-44, 2006. |
| Handle: | RePEc:cca:wpaper:1 |
| Contact details of provider: | Postal: Via Real Collegio, 30, 10024 Moncalieri (To) Phone: +390116705000 Fax: +390116476847 Web page: http://www.carloalberto.org/ Email: More information through EDIRC
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