Related papers: A Theory of Saving under Risk Preference Dynamics
Empirical evidence suggests that the rich have higher propensity to save than do the poor. While this observation may appear to contradict the homotheticity of preferences, we theoretically show that that is not the case. Specifically, we…
The consumption function maps current wealth and the exogenous state to current consumption. We prove the existence and uniqueness of a consumption function when the agent has a preference for wealth. When the period utility functions are…
This paper studies optimal consumption and saving decisions under uncertainty about the transition dynamics of the economic environment. We consider a general optimal savings problem in which the exogenous state governing discounting,…
We prove that the consumption functions in optimal savings problems are asymptotically linear if the marginal utility is regularly varying. We also analytically characterize the asymptotic marginal propensities to consume (MPCs) out of…
We assume that an individual invests in a financial market with one riskless and one risky asset, with the latter's price following geometric Brownian motion as in the Black-Scholes model. Under a constant rate of consumption, we find the…
To determine the welfare implications of price changes in demand data, we introduce a revealed preference relation over prices. We show that the absence of cycles in this relation characterizes a consumer who trades off the utility of…
This paper studies robust forward investment and consumption preferences within a zero-volatility context. Different from previous works, we consider an incomplete financial market model due to general investment portfolio constraints. We…
This paper demonstrates how reinforcement learning can explain two puzzling empirical patterns in household consumption behavior during economic downturns. I develop a model where agents use Q-learning with neural network approximation to…
This paper considers the portfolio management problem of optimal investment, consumption and life insurance. We are concerned with time inconsistency of optimal strategies. Natural assumptions, like different discount rates for consumption…
Economic Model Predictive Control has recently gained popularity due to its ability to directly optimize a given performance criterion, while enforcing constraint satisfaction for nonlinear systems. Recent research has developed both…
We propose a novel approach to infer investors' risk preferences from their portfolio choices, and then use the implied risk preferences to measure the efficiency of investment portfolios. We analyze a dataset spanning a period of six…
This paper considers the problem of consumption and investment in a financial market within a continuous time stochastic economy. The investor exhibits a change in the discount rate. The investment opportunities are a stock and a riskless…
This paper discusses the functional stability of closed-loop Markov Chains under optimal policies resulting from a discounted optimality criterion, forming Markov Decision Processes (MDPs). We investigate the stability of MDPs in the sense…
This paper investigates a novel behavioral feature of recursive preferences: aversion to risks that persist over time, or simply \textit{correlation aversion}. Greater persistence provides information about future consumption but reduces…
This paper analyses how risk-taking behaviour and preferences over consumption rank can emerge as a neutrally stable equilibrium when individuals face an anti-coordination task. If in an otherwise homogeneous society information about…
Most decision theories, including expected utility theory, rank dependent utility theory and cumulative prospect theory, assume that investors are only interested in the distribution of returns and not in the states of the economy in which…
Economic Model Predictive Control (MPC) dissipativity theory is central to discussing the stability of policies resulting from minimizing economic stage costs. In its current form, the dissipativity theory for economic MPC applies to…
Consider an investor trading dynamically to maximize expected utility from terminal wealth. Our aim is to study the dependence between her risk aversion and the distribution of the optimal terminal payoff. Economic intuition suggests that…
The effects of saving and spending patterns on holding time distribution of money are investigated based on the ideal gas-like models. We show the steady-state distribution obeys an exponential law when the saving factor is set uniformly,…
This survey reviews recent developments in revealed preference theory. It discusses the testable implications of theories of choice that are germane to specific economic environments. The focus is on expected utility in risky environments;…