Precautionary Decision Rules under Risk - Needed or Redundant ?
نویسنده
چکیده
I give a general class of preference representations conforming with the von Neumann-Morgenstern axioms, time consistency and additivity of welfare over time on certain outcomes (certainty additivity). I discuss whether precautionary decision rules are needed and in what sense. By explicitly taking care of the gauge freedom allowed for Bernoulli utility my representation theorem allows to relate different setups in the literature. This way a general relation between intertemporal substitutability, risk aversion and a preference for the timing of uncertainty resolution is derived. I point out that only the difference between intertemporal substitutability and risk aversion is gauge invariant. This invariant is shown to characterize precautionarity.
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