Social Status, Non-Expected Utility, Asset Pricing, and Growth
نویسنده
چکیده
This paper investes testable restrictions on the time-series behavior of consumption and asset returns implied by a representative agent model with the spirit of capitalism in which intertemporal preference is represented by a utility function that generalizes conventional, time-additive, expected utility. In the recursive structure of preference, we examines the implication for consumption, portfolio holdings, stock-market prices, and volatility of consumption and wealth when investors accumulate wealth not only for the sake of consumption but also for wealth-induced social status. When investors cares about relative social status, the propensity to consume and risk-taking behavior will depend on social standards, and stock prices will be volatible. Hence, the spirit of capitalism seems to be a driving force behind stock-market volatlity and economic growth. Because the elasticity of substitution and the coefficient of relative risk aversion are indenpendent and the spirit of capitalism is introduced, the equity premium puzzle and the consumption smoothing puzzle can all be reassessed from the perspective of non-expected utility model with the social status.
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