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Risk Aversion, Intertemporal Elasticity of Substitution and Correlation Aversion

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  • Antoine Bommier

    (CNRS and University of Toulouse)

Abstract

Intertemporal correlation aversion is an intuitive concept indicating whether an individual prefers lotteries concerning consumption at different moments in time to be positively or negatively correlated. I show that the difference between the coefficient of relative risk aversion and the inverse of the intertemporal elasticity of substitution is related, in a simple way, to the index of intertemporal correlation aversion.

Suggested Citation

  • Antoine Bommier, 2007. "Risk Aversion, Intertemporal Elasticity of Substitution and Correlation Aversion," Economics Bulletin, AccessEcon, vol. 4(29), pages 1-8.
    • Handle: RePEc:ebl:ecbull:eb-06d90002
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Bagliano, Fabio C. & Fugazza, Carolina & Nicodano, Giovanna, 2019. "Life-cycle portfolios, unemployment and human capital loss," Journal of Macroeconomics, Elsevier, vol. 60(C), pages 325-340.
    2. Loïc Berger & Johannes Emmerling, 2020. "Welfare As Equity Equivalents," Journal of Economic Surveys, Wiley Blackwell, vol. 34(4), pages 727-752, September.
    3. Nishimura, Yukihiro & Pestieau, Pierre & Ponthiere, Gregory, 2018. "Education choices, longevity and optimal policy in a Ben-Porath economy," Mathematical Social Sciences, Elsevier, vol. 94(C), pages 65-81.
    4. Lorenzo Maria Stanca, 2023. "Recursive Preferences, Correlation Aversion, and the Temporal Resolution of Uncertainty," Papers 2304.04599, arXiv.org, revised Jan 2025.
    5. Drouhin, Nicolas, 2015. "A rank-dependent utility model of uncertain lifetime," Journal of Economic Dynamics and Control, Elsevier, vol. 53(C), pages 208-224.
    6. Christian Traeger, 2012. "Once Upon a Time Preference - How Rationality and Risk Aversion Change the Rationale for Discounting," CESifo Working Paper Series 3793, CESifo.
    7. Fabio C. Bagliano & Carolina Fugazza & Giovanna Nicodano, 2017. "A Life-Cycle Model with Unemployment Traps," Working papers 041, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    8. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 41-74, March.
    9. Bommier, Antoine & Lanz, Bruno & Zuber, Stéphane, 2015. "Models-as-usual for unusual risks? On the value of catastrophic climate change," Journal of Environmental Economics and Management, Elsevier, vol. 74(C), pages 1-22.
    10. Pierre Pestieau & Gregory Ponthiere, 2014. "Policy Implications of Changing Longevity," CESifo Economic Studies, CESifo Group, vol. 60(1), pages 178-212.
    11. Bagliano, Fabio C. & Fugazza, Carolina & Nicodano, Giovanna, 2021. "Life-cycle welfare losses from rules-of-thumb asset allocation," Economics Letters, Elsevier, vol. 198(C).
    12. Pestieau, Pierre & Ponthiere, Gregory, 2016. "Longevity Variations And The Welfare State," Journal of Demographic Economics, Cambridge University Press, vol. 82(2), pages 207-239, June.
    13. Gangadharan, Lata & Harrison, Glenn W. & Leroux, Anke D., 2019. "Are risks over multiple attributes traded off? A case study of aid," Journal of Economic Behavior & Organization, Elsevier, vol. 164(C), pages 166-198.
    14. Berger, Loïc & Emmerling, Johannes, 2017. "Welfare as Simple(x) Equity Equivalents," MITP: Mitigation, Innovation and Transformation Pathways 254044, Fondazione Eni Enrico Mattei (FEEM).
    15. AJ A. Bostian & Christoph Heinzel, 2016. "Consumption Smoothing and Precautionary Saving under Recursive Preferences," FOODSECURE Working papers 44, LEI Wageningen UR.
    16. David Dillenberger & Daniel Gottlieb & Pietro Ortoleva, 2017. "Stochastic Impatience and the Separation of Time and Risk Preferences," PIER Working Paper Archive 20-026, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 05 Jul 2020.
    17. Antoine Bommier, 2013. "Life-Cycle Preferences Revisited," Journal of the European Economic Association, European Economic Association, vol. 11(6), pages 1290-1319, December.
    18. Chen Sun & Jan Potters, 2022. "Magnitude effect in intertemporal allocation tasks," Experimental Economics, Springer;Economic Science Association, vol. 25(2), pages 593-623, April.
    19. Antoine Bommier & François Grand, 2014. "Too risk averse to purchase insurance?," Journal of Risk and Uncertainty, Springer, vol. 48(2), pages 135-166, April.
    20. Stanca Lorenzo, 2023. "Recursive preferences, correlation aversion, and the temporal resolution of uncertainty," Working papers 080, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    21. Crainich, David & Eeckhoudt, Louis & Le Courtois, Olivier, 2017. "Health and portfolio choices: A diffidence approach," European Journal of Operational Research, Elsevier, vol. 259(1), pages 273-279.
    22. Lorenzo Stanca, 2023. "Recursive Preferences, Correlation Aversion, and the Temporal Resolution of Uncertainty," Carlo Alberto Notebooks 693 JEL Classification: C, Collegio Carlo Alberto, revised 2025.
    23. Fillon, Romain & Guivarch, Céline & Taconet, Nicolas, 2023. "Optimal climate policy under tipping risk and temporal risk aversion," Journal of Environmental Economics and Management, Elsevier, vol. 121(C).
    24. Thomas Epper & Helga Fehr-Duda, 2015. "Risk Preferences Are Not Time Preferences: Balancing on a Budget Line: Comment," American Economic Review, American Economic Association, vol. 105(7), pages 2261-2271, July.
    25. Mu Zhang, 2021. "A Theory of Choice Bracketing under Risk," Papers 2102.07286, arXiv.org, revised Aug 2021.

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    More about this item

    Keywords

    Correlation Aversion.;

    JEL classification:

    • D9 - Microeconomics - - Micro-Based Behavioral Economics
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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