Optimal Feedback Control Rules Sensitive to Controlled Endogenous Risk-Aversion

Abstract

The objective of this paper is to correct and improve the results obtained by Van der Ploeg (1984a, 1984b) and utilized in the literature related to feedback stochastic optimal control sensitive to constant exogenous risk-aversion (Karp 1987; Whittle 1989, 1990; Chow 1993, amongst others). More realistic, the proposed approach deals with endoge- nous risks that are under the control of the decision-maker. It has strong implications on the policy decisions adopted by the decision-maker during the entire planning horizon.Controlled stochastic environment, rational decision-maker, adaptive control, optimal path, feedback optimal strategy, endogenous risk-aversion, dynamic active learning.Controlled stochastic environment, rational decision-maker, adaptive control, optimal path, feedback optimal strategy, endogenous risk-aversion, dynamic active learning.