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Recursive Preferences and Ambiguity Attitudes

Author

Listed:
  • Marinacci Massimo

    (Department of Decision Sciences and IGIER, Bocconi University, Italy;)

  • Principi Giulio

    (Department of Economics, New York University, USA;)

  • Stanca Lorenzo

    (Department of Economics, Social Studies, Applied Mathematics and Statistics (ESOMAS) and Collegio Carlo Alberto, University of Torino, Italy;)

Abstract
We illustrate the strong implications of recursivity, a standard assumption in dynamic environments, on attitudes toward uncertainty. In intertemporal consumption choice problems, recursivity always implies constant absolute ambiguity aversion (CAAA) when applying the standard dynamic extension of monotonicity. Our analysis also yields a functional equation called ``generalized rectangularity", as it generalizes the standard notion of rectangularity for recursive maxmin preferences to general certainty equivalents. Our results highlight that if uncertainty aversion is modeled as a form of convexity of preferences, recursivity limits us to only recursive variational preferences.

Suggested Citation

  • Marinacci Massimo & Principi Giulio & Stanca Lorenzo, 2023. "Recursive Preferences and Ambiguity Attitudes," Working papers 082, Department of Economics, Social Studies, Applied Mathematics and Statistics (Dipartimento di Scienze Economico-Sociali e Matematico-Statistiche), University of Torino.
    • Handle: RePEc:tur:wpapnw:082
    as

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    File URL: https://www.bemservizi.unito.it/repec/tur/wpapnw/m82.pdf
    File Function: First version, 2023
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Dynamic choice; Recursive utility; uUncertainty aversion; Absolute attitudes; Generalized rectangularity.;
    All these keywords.

    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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