On the stability of the constant relative risk aversion (CRRA) utility under high degrees of uncertainty
نویسندگان
چکیده
Growth models under uncertainty and constant relative risk aversion (CRRA) utility are fragile in explaining consumers’ choice, as equilibrium consumption is dependent on distributional assumptions. We show that, under semi-nonparametric distributions, general equilibrium models are stable, as the existence of expected utility is guaranteed. © 2011 Elsevier B.V. All rights reserved.
منابع مشابه
Dynamic Choice with Constant Source-Dependent Relative Risk Aversion
An axiomatic characterization of recursive utility with source-dependent constant relative risk aversion (CRRA), constant elasticity of intertemporal substitution, constant rate of impatience and subjective beliefs is established. The utility form is a minimal extension of Epstein-Zin-Weil utility that allows the CRRA to depend on the source of risk, a dependence that admits an ambiguity aversi...
متن کاملInvestigating the Role of real Money Balances in Households' Preferences function in the Framework of the Assets Pricing Models (M-CCAPM): Case study of Iran
In this paper, we try to develop and modify the basic model of the consumption-based capital asset pricing model by adding the growth in real money balances rate as a risk factor in the household's utility function as (M-CCAPM). For this purpose, two forms of utility function with constant relative risk aversion (CRRA) preferences and recursive preferences have been used such that M1 and M2 are...
متن کاملRisk Premiums and Benefit Measures for Generalized-expected-utility Theories
Over the past fteen years, the theory of choice under uncertainty has undergone radical change. The pivotal contribution was Machinaas (1982) demonstration that a large class of preferences could be locally approximated by expected-utility func-tionals and that global preferences inherited properties, such as risk aversion, of the local utility functions. Less progress has been made, however, i...
متن کاملThe Flexible Three Parameter Utility Function
Many mathematical forms of utility functions have been considered in the economics and finance literature, although, as Xie (2000) has said, by far the most widely employed are those displaying constant relative risk aversion (CRRA). Xie pointed out the dangers implicit in an inappropriate assumption of CRRA and the desirability of more flexible utility functions permitting a greater range of r...
متن کاملOptimal implementation of the TOU load response program by providing an economical model related to the behavior of residential electricity consumers.
The important defect of the previous models , is assumed that consumer behavior is based on logic and with a rise in the price their consumption decreased and they accurately have no problems with their control. However, various parameters such as lifestyle, habits and emotions and something like that can be effective. In this paper, we use the new model called the OLG model and the CRRA funct...
متن کامل