Optimal Consumption Under Different Resolution Times of Uncertainty

Takashi Nishiwaki ()

No 2009, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: This study compares the optimal consumption amount for a risk-averse agent under different uncertainty resolution times in a time-separable utility setting. We show that an agent with a positive third derivative utility function (i.e., a prudent agent) reduces his/her consumption amount when the uncertainty resolution is postponed. We also demonstrate that an agent does not change consumption behavior under different uncertainty resolution times if and only if the agent has a quadratic utility.

Keywords: Background risk; Time-separable utility; Prudence, Optimal consumption; Timing of uncertainty resolution (search for similar items in EconPapers)
JEL-codes: G11 G22 G51 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2020-08
New Economics Papers: this item is included in nep-mic, nep-ore and nep-upt
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