Intertemporal substitution and recursive smooth ambiguity preferences

Jianjun Miao and Takashi Hayashi ()
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Takashi Hayashi: Department of Economics, University of Texas at Austin

No WP2010-030, Boston University - Department of Economics - Working Papers Series from Boston University - Department of Economics

Abstract: In this paper, we establish an axiomatically founded generalized recursive smooth ambiguity model that allows for a separation among intertemporal substitution, risk aversion, and ambiguity aversion. We axiomatize this model using two approaches: the second-order act approach à la Klibanoff et al. (2005) and the twostage randomization approach à la Seo (2009). We characterize risk attitude and ambiguity attitude within these two approaches. We then discuss our model’s application in asset pricing. Our recursive preference model nests some popular models in the literature as special cases.

Keywords: Ambiguity; ambiguity aversion; risk aversion; intertemporal substitution; model uncertainty; recursive utility; dynamic consistency. (search for similar items in EconPapers)
JEL-codes: D80 D81 D90 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2010-01
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Citations: View citations in EconPapers (5)

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Journal Article: Intertemporal substitution and recursive smooth ambiguity preferences (2011)
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