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4 edition of On intertemporal preferences for uncertain consumption found in the catalog.

On intertemporal preferences for uncertain consumption

a continuous time approach

by Ayman Hindy

  • 337 Want to read
  • 32 Currently reading

Published by Alfred P. Sloan School of Management, Massachusetts Institute of Technology in Cambridge, Mass .
Written in English


Edition Notes

Statementby Ayman Hindy and Chi-fu Huang.
SeriesWP -- #2605-87-WFA, Working paper (Sloan School of Management) -- 2605.
ContributionsHuang, Chi-fu., Sloan School of Management.
The Physical Object
Pagination21 p. ;
Number of Pages21
ID Numbers
Open LibraryOL17940618M
OCLC/WorldCa45076472

We have found the intertemporal budget constraint. To find the optimal choice we now need to consider the preferences of the individual over bundles of intertemporal consumption (c1, c2). In chapter 21 we will consider a particular type of preferences which seems to have good empirical validity. Proposition 1 Suppose that U: P →R is an expected utility representation of the preference relation º on : P →R is an expected utility representation of º if and only if there are scalars aand b>0 such that V(p)=a+bU(p) for all p∈P. Proof. Suppose Uis an expected utility representation of º,andU(p)= P ipiui.

OBM&,X p'--'r-'^^itifflt •^ i WORKINGPAPER CHOOLOFMANAGEMENT or;IN'PREFERENCESWITHA co:cTir;uoustimedimensionii: THECASEOFUNCERTAINTY by AymanHindyandChi-fuHuang RevisedVv"P# July MASSACHUSETTS INSTITUTEOFTECHNOLOGY 50MEMORIALDRIVE . In general, individuals seek to avoid uncertainty in situations of intertemporal choice. While holding the expected value of payouts constant, participants preferred immediate gains and losses if the future was uncertain, and preferred future gains and losses if the present was uncertain. This pattern of preferences is incompatible with current models of intertemporal choice, in which people should consistently prefer .

When decisions are intertemporal and utility is time separable, this gives rise to the standard DEU model: U= u(c t) + XT k=0 kE[u(c t+k)] where present consumption is certain while future consumption is both discounted and uncertain. The expectation, E[], is taken via a standard linear-in-probabilities weighting over N states: E[u(c t+k)] = P N s=1 p su(c t+k;s) = P. uncertain wages, other income, interest rates, and exogenous lay-offs and is conditional on information at time period t. This framework has often been used to measure the intertemporal elasticity of substitution both for consumption (with respect to the interest rate) and for.


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On intertemporal preferences for uncertain consumption by Ayman Hindy Download PDF EPUB FB2

On intertemporal preferences for uncertain consumption: a continuous time approach; WP # EFA, Revised May [Hindy, Ayman, Huang, Chi-fu] on *FREE* shipping on qualifying offers.

On intertemporal preferences for uncertain consumption: a continuous time approach; WP # EFA, Revised May On Intertemporal Preferences for Uncertain Consumption: A Continuous Time Approach By Ayman Hindy, Chi-fu Huang Working Paper No.

We propose a family of topologies on the space of consumption patterns in continuous time under uncertainty. The effect of uncertain lifetime on intertemporal preferences is studied. A demographic model that allows for unobservable heterogeneity in frailty (risk of mortality) accommodates the common difference effect, even in the presence of stationarity and time consistency.

uncertainty is present, then intertemporal substitution is composed of time preference (discounting) which stands for intertemporal substitution under full certainty, and odds of realizing consumption.

I show that if preferences are stationary and time consistency is imposed (hence discounting of time. Thus if equilibrium prices for consumption come from the duals, consumptions at nearly adjacent dates in a state of nature have almost equal prices except possibly at information surprises.

In particular, if the information structure is generated by a Brownian motion, the duals are composed of Ito processes. Downloadable (with restrictions). We study the intertemporal consumption and portfolio rules in the model with the general hyperbolic absolute risk aversion (HARA) utility.

The equivalent approximation approach is employed to obtain the Hamilton-Jacobi-Bellman (HJB) equations, and a remarkable property is shown: portfolio rules are independent of the discount function. This paper presents a nonparametric, revealed preference analysis of intertemporal consumption with risk.

In an experimental setting, subjects allocate tokens over four commodities, consisting of consumption in two contingent states and at two time periods, subject to different budget constraints.

In this thesis, we propose a model of intertemporal choice built on the hypothesis of a rational individual with an imperfect knowledge of his own time preferences. Household preferences are given by: ( 1  2)=( 1)+( 2) where 0 1 is the discount factor, i.e.

the factor at which future consumption is discounted compared to current consumption. 1 Consumption and saving under uncertainty Modelling uncertainty As in the deterministic case, we keep assuming that agents live for two periods. The novelty here is that their earnings in the second period are uncertain.

Uncertainty is defined in terms of a random variable ∈ = {¯ 1 ¯1 ¯ }. time-inconsistent preference and the oscillations between cognitive and emotional biases can be accounted for by a variety of motivations.

Uncertainty regarding an upcoming consumption is quite common, especially when potential outcomes are not easily assessed.

Bee and Madrigal () show that uncertain consumption situations will elicit. On the standard models and the J, topologies The standard models of preferences for consumption through time assume that preferences are defined over consumption in rates and are given by a numerical representation of either the time-additive form U(x) = f u(x'(t), t) dt, 0 or the non-time-additive form U(x),I u(x'(t), y(t), t) dt, (1) where x' denotes the first derivative of cumulative consumption x.

a) The most frequently used method to investigate intertemporal choice in pigeons and rats is the self-control paradigm. In this technique, subjects experience an intertrial interval in which.

This article makes explicit the links between preferences over lotteries on length of life and intertemporal choice. It shows that the approach used by traditional life cycle models to account for uncertain survival corresponds to a strong assumption of risk neutrality with respect to length of life.

The chapter begins with the development of an economic model of consumption and labor supply behavior in an intertemporal environment in which the consumer is uncertain about his future income, the future relative prices of consumption and leisure, and variables influencing his future preferences.

A Two-Period Model Consumers Experiments Introduction Intertemporal Decisions Macroeconomics studies how key variables evolve over time The simplest way to think about intertemporal decisions is in a two-period model The first period is the current period (or today) The second period represents the future (or tomorrow) Key trade-off: consuming today or consuming in the future.

For a lender, in a two-period intertemporal model, an increase in the real interest rate 1) has an uncertain effect on current consumption and increases future consumption. 2) definitely reduces current consumption and increases future consumption. 3) has an uncertain effect on both current and future consumption.

Consumers’ intertemporal preferences have been studied across multiple theoretical and applied areas. This article outlines research showing that the context in which intertemporal preferences are expressed matters, as well as research exploring the mechanisms that account for these effects.

In a singlegood model, an individual's asset portfolio results in an optimal consumption rate that has the maximum possible correlation with changes in aggregate consumption. If the capital markets are unconstrained Pareto-optimal, then changes in all individuals' optimal consumption rates are shown to be perfectly correlated.

Intertemporal Consumption with Risk: A Revealed Preference Analysis Lanier, Joshua and Miao, Bin and Quah, John and Zhong, Songfa Oxford University, Shanghai University of Finance and Economics, Johns Hopkins University, National University of Singapore 1 February Online at.

Irving Fisher developed the theory of intertemporal choice in his book Theory of interest (). Contrary to Keynes, who related consumption to current income, Fisher's model showed how rational forward looking consumers choose consumption for the present and future to.

Intertemporal Choice: Utility Maximization Over Two Time Periods - Duration: Economics in Many Lessons 7, views.Special Case: Deterministic consumption If consumption is deterministic: we have the usual standard time-separable expected discounted utility with discount factor and IES = 1 ˆ, risk aversion = ˆ: Proof: If no uncertainty, then R t(V t+1) = V t+1 and V t= F(c t;V t+1):With a CES functional form for F;we recover CRRA preferences: V t= (1)c1.