A Model of Stochastic Utility Smoothing
نویسندگان
چکیده
In riskless intertemporal choice, experimental studies suggest that a decision maker prefers smoothing a utility distribution implied by a sequence of outcomes. This paper extends, in an axiomatic framework, this notion of utility smoothing to a stochastic setting. We show that such an application can provide an axiomatic model of loss aversion in dynamic choice under uncertainty, which contrasts with conventional axiomatization of loss aversion in a static framework. Keywords: discount factors, gain/loss asymmetry, loss aversion, recursive utility, reference-dependent preferences, utility smoothing JEL Classi cation: D81, D90 Department of Economics, Otaru University of Commerce, 3-5-21 Midori, Otaru, Hokkaido 047-8501, Japan; [email protected]; http://www.otaruuc.ac.jp/~kwakai/
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