Abstract
This paper presents an axiomatic approach to separately control for the attitudes toward intertemporal substitution and risk aversion under the expected utility theorem. The standard time-separable form is recovered only if the functions dictating the two attitudes are identical. Risk aversion is defined on consumption amount rather than on utility (as in Kihlstrom and Mirman (1974 and 1981)). Moreover, the agent is allowed to trade his lottery outcome to optimize his consumption. As a result, this approach provides a straightforward extension of the familiar Arrow-Pratt results to multiple periods. These include categorizing, measuring, and comparing risk aversions.
Acknowledgements:
I thank Larry Epstein, Thomas Jeitschko, Jack Meyer, Leonard Mirman, Matthew Ryan, the editor-in-chief Burkhard Schipper, the anonymous reviewers, and seminar participants at Michigan State University, Midwest Economics Association Annual Meeting, Australasia Meeting of the Econometric Society, and Australasian Economic Theory Workshop for helpful comments. This paper is based on a chapter in my PhD dissertation. All errors and opinions are mine.
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Articles in the same Issue
- Research Articles
- Sustaining Cooperation Through Strategic Self-Interested Actions
- Endogenous Markup, Per Capita Income and Population Size in the Gravity Equation
- Profits Under Centralized Negotiations: The Efficient Bargaining Case
- Disentangling Intertemporal Substitution and Risk Aversion Under the Expected Utility Theorem
- Managerial Delegation Contracts, “Green” R&D and Emissions Taxation
- Entry Deterrence, Coordinating Advertising and Pricing in Markets with Consumption Externalities
- Do Time Preferences Matter in Intertemporal Consumption and Portfolio Decisions?
- From Jungle to Civilized Economy: The Power Foundation of Exchange Economy Equilibrium
- Endogenous Matching and Money with Random Consumption Preferences
- Notes
- An Asymmetric Duopoly Model of Price Framing
- A First Price Auction with an Arbitrary Number of Asymmetric Bidders
- Stable Matching with Double Infinity of Workers and Firms
Articles in the same Issue
- Research Articles
- Sustaining Cooperation Through Strategic Self-Interested Actions
- Endogenous Markup, Per Capita Income and Population Size in the Gravity Equation
- Profits Under Centralized Negotiations: The Efficient Bargaining Case
- Disentangling Intertemporal Substitution and Risk Aversion Under the Expected Utility Theorem
- Managerial Delegation Contracts, “Green” R&D and Emissions Taxation
- Entry Deterrence, Coordinating Advertising and Pricing in Markets with Consumption Externalities
- Do Time Preferences Matter in Intertemporal Consumption and Portfolio Decisions?
- From Jungle to Civilized Economy: The Power Foundation of Exchange Economy Equilibrium
- Endogenous Matching and Money with Random Consumption Preferences
- Notes
- An Asymmetric Duopoly Model of Price Framing
- A First Price Auction with an Arbitrary Number of Asymmetric Bidders
- Stable Matching with Double Infinity of Workers and Firms