Solutions to Some Dynamic Problems with Uncertainty Aversion

Hiroyuki Ozaki and Peter Streufert
Authors registered in the RePEc Author Service: Mattias K Polborn

No 9912, University of Western Ontario, Departmental Research Report Series from University of Western Ontario, Department of Economics

Abstract: In a discounted expected-utility problem, tomorrow's utilities are aggregated across tomorrow's states by the expectation operator. In our problems, this aggregation is accomplished by a Choquet integral of the form iudP a, where a specifies uncertainty aversion. We solve all finite-state problems by either a closed form or a finite-dimensional iteration, and show that uncertainty aversion reduces the perceived return on investment, thereby decreasing the saving rate given elastic preferences and increasing the saving rate given inelastic preferences.

Date: 1999
New Economics Papers: this item is included in nep-cdm, nep-his, nep-law and nep-mic
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Journal Article: Solutions For Some Dynamic Problems With Uncertainty Aversion (2001)
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