Events

Professor Norio Takeoka
Faculty of Economics
Hitotsubashi University

Abstract:

We consider an agent who faces dynamic decision problems and anticipates nonstationary and persistent shocks to risk and time preferences.  Taking a preference for infinite-horizon consumption problems as a primitive, we introduce a recursive utility representation that captures the agent’s preference for flexibility.  In the representation, the agent’s anticipation of preference shocks is modeled as an infinite higher-order belief.  The characterization of this representation is based on axioms that reflect the agent’s anticipation about future preferences in terms of attitudes toward flexibility and intertemporal trade-offs.  While the belief in this representation is not uniquely determined in general, it becomes generically unique under a normalization of consumption utilities.