Intertemporal Substitution and Recursive Smooth Ambiguity Preferences

Posted: 7 Feb 2010

See all articles by Takashi Hayashi

Takashi Hayashi

University of Texas at Austin

Jianjun Miao

Boston University - Department of Economics

Date Written: February 7, 2010

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, Marinacci, and Mukerji (2005) and the two-stage 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

JEL Classification: D80, D81, D90

Suggested Citation

Hayashi, Takashi and Miao, Jianjun, Intertemporal Substitution and Recursive Smooth Ambiguity Preferences (February 7, 2010). Available at SSRN: https://ssrn.com/abstract=1549443

Takashi Hayashi

University of Texas at Austin ( email )

2317 Speedway
Austin, TX Texas 78712
United States

Jianjun Miao (Contact Author)

Boston University - Department of Economics ( email )

270 Bay State Road
Boston, MA 02215
United States
617-353-6675 (Phone)

HOME PAGE: http://people.bu.edu/miaoj

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