An Irrelevance Theorem for Risk Aversion and Time-Varying Risk

Andrew Chen and Francisco Palomino

Review of Economic Dynamics, 2026, vol. 61

Abstract: We provide a theorem on the role of risk and risk attitudes in macroeconomic models that clarifies and extends the Tallarini (2000) separation result. Under (1) separation of intertemporal and risk preferences, (2) separation of drivers of first and higher moments in the model primitives, and (3) approximate linearity of constraints, risk aversion and time-varying risk are irrelevant for the elasticity of any endogenous variable with respect to state variables that don’t drive variation in higher moments. We discuss how models generate a more prominent role for risk by “breaking†or “adapting†to the assumptions in the theorem. (Copyright: Elsevier)

Keywords: equilibrium models; asset pricing; macroeconomics; risk and uncertainty (search for similar items in EconPapers)
JEL-codes: D50 D81 E1 G12 (search for similar items in EconPapers)
Date: 2026
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DOI: 10.1016/j.red.2026.101347

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