Solutions for some dynamic problems with uncertainty aversion

Hiroyuki Ozaki, Peter A. Streufert

Research output: Contribution to journalArticle

3 Citations (Scopus)

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 ∫udpa, 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. JEL Classification Numbers: C61, D81, D9.

Original languageEnglish
Pages (from-to)251-283
Number of pages33
JournalJapanese Economic Review
Volume52
Issue number3
DOIs
Publication statusPublished - 2001

ASJC Scopus subject areas

  • Economics and Econometrics

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