Related papers: A Theory of Saving under Risk Preference Dynamics
We characterize optimal monetary policy when policy endogenously moves risk premia through redistribution across agents who differ in their willingness to bear risk. The analytical core is Marginal Risk Capacity, the covariance of monetary…
We explore the implications of a preference ordering for an investor-consumer with a strong preference for keeping consumption above an exogenous social norm, but who is willing to tolerate occasional dips below it. We do this by splicing…
Standard macroeconomic models assume that households are rational in the sense that they are perfect utility maximizers, and explain economic dynamics in terms of shocks that drive the economy away from the stead-state. Here we build on a…
The aims of this study are twofold. First, we consider an optimal risk allocation problem with non-convex preferences. By establishing an infimal representation for distortion risk measures, we give some necessary and sufficient conditions…
In this paper, we consider solving discounted Markov Decision Processes (MDPs) under the constraint that the resulting policy is stabilizing. In practice MDPs are solved based on some form of policy approximation. We will leverage recent…
This paper investigates the consumption and risk taking decision of an economic agent with partial irreversibility of consumption decision by formalizing the theory proposed by Duesenberry (1949). The optimal policies exhibit a type of the…
Most work in mechanism design assumes that buyers are risk neutral; some considers risk aversion arising due to a non-linear utility for money. Yet behavioral studies have established that real agents exhibit risk attitudes which cannot be…
We revisit the problem of portfolio selection, where an investor maximizes utility subject to a risk constraint. Our framework is very general and accommodates a wide range of utility and risk functionals, including non-concave utilities…
We present an alternative view for the study of optimal control of partially observed Markov Decision Processes (POMDPs). We first revisit the traditional (and by now standard) separated-design method of reducing the problem to fully…
We propose a consumption-investment decision model where past consumption peak $h$ plays a crucial role. There are two important consumption levels: the lowest constrained level and a reference level, at which the risk aversion in terms of…
The fundamental principle in Modern Portfolio Theory (MPT) is based on the quantification of the portfolio's risk related to performance. Although MPT has made huge impacts on the investment world and prompted the success and prevalence of…
We consider the economic problem of optimal consumption and investment with power utility. We study the optimal strategy as the relative risk aversion tends to infinity or to one. The convergence of the optimal consumption is obtained for…
In a continuous time stochastic economy, this paper considers the problem of consumption and investment in a financial market in which the representative investor exhibits a change in the discount rate. The investment opportunities are a…
We consider a simple model of a closed economic system where the total money is conserved and the number of economic agents is fixed. In analogy to statistical systems in equilibrium, money and the average money per economic agent are…
In this paper we present detailed simulation results on the wealth distribution model with quenched saving propensities. Unlike other wealth distribution models where the saving propensities are either zero or constant, this model is not…
This paper presents an axiomatic approach to finite Markov decision processes where the discount rate is zero. One of the principal difficulties in the no discounting case is that, even if attention is restricted to stationary policies, a…
We study the implications of a central bank digital currency (CBDC) for the transmission of household preference shocks and for welfare in a New Keynesian framework where the CBDC competes with bank deposits for household resources and…
We show in a simulation when economic agents are subject to evolution (random change and selection based on the success in the estimation of the result of the gamble) they acquire risk aversive behavior. This behavior appears in the form of…
We study group decision making with changing preferences as a Markov Decision Process. We are motivated by the increasing prevalence of automated decision-making systems when making choices for groups of people over time. Our main…
This paper proposes two mixed models to study a consumer's optimal saving in the presence of two types of risk.