Modeling nonmonotone preferences: The case of utility smoothing

Katsutoshi Wakai

Journal of Mathematical Economics, 2011, vol. 47, issue 2, 213-226

Abstract: Abstract We propose a model of intertemporal choice in which a strong dislike of volatility involved in a utility sequence causes preferences to be nonmonotone. In particular, this notion of utility smoothing allows us to axiomatize a representation that captures an extreme dislike of losses. When applied to a consumption-saving problem, the nonmonotone preferences induced by our model never suggest a monotonically decreasing consumption profile. Furthermore, an optimal consumption sequence need not be monotonically increasing. Our model may suggest spreading large and small consumption allocations over time if the volatility involved in a utility sequence is sufficiently low.

Keywords: Discount; factor; Gain/loss; asymmetry; Nonmonotone; preferences; Recursive; utility; Reference; point; Utility; smoothing (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0304406811000358
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:mateco:v:47:y:2011:i:2:p:213-226

Access Statistics for this article

Journal of Mathematical Economics is currently edited by Atsushi (A.) Kajii

More articles in Journal of Mathematical Economics from Elsevier
Bibliographic data for series maintained by Catherine Liu ().