A Robust Approach to Risk Aversion
Disentangling risk aversion and elasticity of substitution without giving up preference monotonicity
OPEN ACCESS
Loading...
Author / Producer
Date
2014-09-24
Publication Type
Working Paper
ETH Bibliography
yes
Citations
Altmetric
OPEN ACCESS
Data
Rights / License
Abstract
We formalize the notion of monotonicity with respect to first-order stochastic dominance in the context of preferences defined over the set of temporal lotteries. It is shown that the only Kreps and Porteus (1978) preferences which are both stationary and monotone are Uzawa preferences and risk-sensitive preferences introduced by Hansen and Sargent (1995). We also extend our results to smooth recursive ambiguity models. Focusing on monotone preferences enables a much better understanding of the role of risk aversion. As an application, we derive new general results on the determinants of precautionary savings and asset prices in dynamic settings.
Permanent link
Publication status
published
External links
Editor
Book title
Journal / series
Volume
Pages / Article No.
Publisher
ETH Zurich
Event
Edition / version
Methods
Software
Geographic location
Date collected
Date created
Subject
Precautionary savings; Risk aversion; Recursive models; Ambiguity aversion; Monotonicity; Asset pricing; First-order stochastic dominance; Temporal lotteries
Organisational unit
03877 - Bommier, Antoine / Bommier, Antoine
02120 - Dep. Management, Technologie und Ökon. / Dep. of Management, Technology, and Ec.