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Multi-Period Consumption Decision under Conditions of Uncertainty

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  • Haim Levy

    (The Hebrew University of Jerusalem)

Abstract

An investor is faced with several investment alternatives. Any investment plan induces a vector of consumption where the consumption in each period is a random variable. Obviously, the optimal vector of consumption is determined by the multi-period utility function. However, in most cases we have no information on the investor's preference, and hence we cannot choose the optimal consumption strategy. Assuming that the multi-period utility function is nondecreasing we establish a decision rule which divides the feasible set of consumption strategies into two sets: the "efficient set" and the "inefficient set." Thus, in the second step each investor selects the optimal consumption strategy from the efficient set according to his preference.

Suggested Citation

  • Haim Levy, 1976. "Multi-Period Consumption Decision under Conditions of Uncertainty," Management Science, INFORMS, vol. 22(11), pages 1258-1267, July.
    • Handle: RePEc:inm:ormnsc:v:22:y:1976:i:11:p:1258-1267
    DOI: 10.1287/mnsc.22.11.1258
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    Cited by:

    1. Jeffrey, Scott R., 1987. "The Application Of Stochastic Dominance Techniques To Multi-Period Problems: Issues And Implications," Staff Papers 13547, University of Minnesota, Department of Applied Economics.
    2. Chen, Yi-Hsuan & Vinogradov, Dmitri V., 2021. "Coins with benefits: On existence, pricing kernel and risk premium of cryptocurrencies," IRTG 1792 Discussion Papers 2021-006, Humboldt University of Berlin, International Research Training Group 1792 "High Dimensional Nonstationary Time Series".
    3. Levy, Haim & Wiener, Zvi, 2013. "Prospect theory and utility theory: Temporary versus permanent attitude toward risk," Journal of Economics and Business, Elsevier, vol. 68(C), pages 1-23.

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