Axiomatic Work on Uncertainty Represen - tation and on Discounting

In the discounted expected utility model, risk aversion is fully determined by deterministic intertemporal choice. General recursive preferences like KrepsPorteus and Epstein-Zin-Weil preferences resolve this short-coming. These preferences are widely used in finance because they capture the spread between safe and risky returns significantly better than the discounted expected utility model (equity premium and risk-free rate puzzles). Capturing both risk-free discount rate and risk premia correctly is crucial also for the evaluation of climate change. The papers in this section contribute to the representation and characterization of general risk and uncertainty attitude, where general uncertainty describes scenarios not easily mapped into the usual probability distributions. The paper Capturing Intrinsic Risk Attitude characterizes the general class of preferences satisfying additive separability over time of certain outcomes and the von Neuman-Morgenstern axioms for choice under risk. The resulting preferences disentangle intertemporal consumption smoothing from risk aversion. I show that the Arrow-Pratt risk aversion measure, in the standard as well as the Epstein-Zin setting, depends on the commodity under observation and its measure scale. I introduce the concept and measures of intertemporal risk aversion that are independent of the commodity under observation and its measure scale. I carefully elaborate the often implicit assumptions of comparing risk measures across agents. The paper Once Upon a Time Preference How Rationality and Risk Aversion Change the Rationale for Discounting shows how a comprehensive risk attitude (in the sense of intertemporal risk aversion) replaces pure time preference in the discounted expected utility model. Wide-spread rationality constraints eliminate pure time preference and imply that we give more weight to the future the more we know about the future consequences of our actions. Not all uncertainties are created equal. A few of them are objective, most