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Ambiguity and endogenous discounting

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  • Bommier, Antoine
  • Kochov, Asen
  • Le Grand, François

Abstract

Existing work has shown that ambiguity averse agents dislike positive autocorrelation in their consumption profile. Remarkably, the same prediction can be generated by expected-utility models with endogenous discounting if one makes the common assumption of increasing marginal impatience. This paper disentangles the intertemporal predictions of ambiguity aversion from those of endogenous discounting by identifying a form of autocorrelation that is disliked by ambiguity averse agents only. The analysis is supplemented by two representation theorems. The first delivers a novel axiomatization of endogenous discounting without restricting beliefs to be expected utility. Leveraging our analysis of ambiguity aversion, the second result delivers a maxmin representation of beliefs.

Suggested Citation

  • Bommier, Antoine & Kochov, Asen & Le Grand, François, 2019. "Ambiguity and endogenous discounting," Journal of Mathematical Economics, Elsevier, vol. 83(C), pages 48-62.
    • Handle: RePEc:eee:mateco:v:83:y:2019:i:c:p:48-62
    DOI: 10.1016/j.jmateco.2019.04.001
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    Cited by:

    1. Lorenzo Maria Stanca, 2023. "Recursive Preferences, Correlation Aversion, and the Temporal Resolution of Uncertainty," Papers 2304.04599, arXiv.org, revised Jul 2023.
    2. Lorenzo Bastianello & José Heleno Faro, 2023. "Choquet expected discounted utility," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 75(4), pages 1071-1098, May.
    3. 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.
    4. Lorenzo Bastianello & Jos'e Heleno Faro, 2019. "Time discounting under uncertainty," Papers 1911.00370, arXiv.org, revised Mar 2020.
    5. Thomas J. Sargent & John Stachurski, 2024. "Dynamic Programming: Finite States," Papers 2401.10473, arXiv.org.
    6. Lorenzo Stanca, 2023. "Recursive Preferences, Correlation Aversion, and the Temporal Resolution of Uncertainty," Carlo Alberto Notebooks 693 JEL Classification: C, Collegio Carlo Alberto.

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