68 research outputs found
Recursive Preferences and Ambiguity Attitudes
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
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