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Recursive Preferences and Ambiguity Attitudes by Marinacci, Massimo; Principi, Giulio; Stanca, Lorenzo is a scholarly article available to read on EtoBox.

What is Recursive Preferences and Ambiguity Attitudes about?

We study the implications of recursivity and state monotonicity in intertemporal consumption problems under ambiguity. We show that monotone recursive preferences admit a recursive and ex-ante representation, both with translation invariant certainty equivalents. Translation invariance restricts the decision maker's absolute ambiguity attitudes to be constant. As a byproduct, this restriction implies that monotone recursive and convex preferences collapse to the variational model. Using dynamic consistency, we show that our two representations are connected by a condition that extends the standard rectangularity notion for recursive multiple priors. This "generalized rectangularity" condition allows us to uniquely retrieve the ex-ante representation starting fromthe recursive one and to obtain dynamic consistency conditions for preferences exhibiting constant absolute ambiguity aversion. Interpreting generalized rectangularity as a law of iterated nonlinear expectations, we discuss its relevance with respect to large sample theory.

Author

Marinacci, Massimo; Principi, Giulio; Stanca, Lorenzo

Published

2023

Language

EN