Heterogeneous Beliefs in a Continuous-Time Model
Chiaki Hara ()
No 701, KIER Working Papers from Kyoto University, Institute of Economic Research
In an exchange economy under uncertainty populated by consumers having constant and equal relative risk aversion but heterogeneous probabilistic beliefs, we analyze the nature of the representative consumer's probabilistic belief and discount rates. We prove a formula that implies that the representative consumer's discount rates are raised or lowered by belief heterogeneity depending on whether the constant relative risk aversion is greater or smaller than one. We also show that the representative consumer's discount rates may be a hyperbolic function of time even when the individual consumers' discount rates are equal to one another, as long as their beliefs are heterogeneous.
Keywords: Representative consumer; expected utility; hyperbolic discounting; constant relative risk aversion; Ito's Lemma; Girsanov's Theorem (search for similar items in EconPapers)
JEL-codes: D51 D53 D81 D91 G12 G13 Q51 Q54 (search for similar items in EconPapers)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:701
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