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Ambiguity and endogenous discounting

Antoine Bommier, Asen Kochov and François Le Grand

Journal of Mathematical Economics, 2019, vol. 83, issue C, 48-62

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.

Keywords: Intertemporal choice; Ambiguity; Correlation aversion; Endogenous discounting (search for similar items in EconPapers)
Date: 2019
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Handle: RePEc:eee:mateco:v:83:y:2019:i:c:p:48-62