Rational Ignorance in Long-run Risk Models

Stefano d¡¦Addona
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Stefano d¡¦Addona: University of Roma Tre, Italy
Authors registered in the RePEc Author Service: Stefano d'Addona

International Journal of Business and Economics, 2018, vol. 17, issue 1, 43-54

Abstract: This paper documents an unpleasant feature of Epstein-Zin preferences in long-run risk models that are widespread in asset pricing: Agents with a preference for an early resolution of uncertainty achieve higher utility if they ignore information on the state of the business cycle.

Keywords: recursive preferences; Epstein-Zin preferences; uncertainty aversion; information processing; time inconsistency (search for similar items in EconPapers)
JEL-codes: D83 D84 E32 (search for similar items in EconPapers)
Date: 2018
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