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 contras...

Assuming Brownian/Poisson uncertainty, a certainty equivalent (CE) based on the smooth second-order expected utility of Klibanoff, Marinacci, and Mukerji (Econometrica, 2005) is shown to be approximately equal to an expected-utility CE. As a consequence, the corresponding continuous-time recursive utility form is the same as for Kreps-Porteus utility. The analogous conclusions are drawn for a s...

In a recent article, Zachary Neal (2011) distinguishes between centrality and power in world city networks and proposes two measures of recursive power and centrality. His effort to clarify oversimplistic interpretations of relational measures of power and position in world city networks is appreciated. However, Neal’s effort to innovate methodologically is based on theoretical reasoning that i...

In a context of complete Þnancial markets where asset prices follow Ito’s processes, we characterize the set of consumption processes which are optimal for a given stochastic differential utility (e.g. Duffie and Epstein (1992)) when beliefs are unknown. Necessary and sufficient conditions for the efficiency of a consumption process, consists of the existence of a solution to a quadratic backwa...

In this short paper, uncertainties on resource stock and on technical progress are introduced into an intertemporal equilibrium model of optimal extraction of a non-renewable resource. The representative consumer maximizes a recursive utility function which disentangles between intertemporal elasticity of substitution and risk aversion. A closed-form solution is derived for both the optimal ext...

This paper distinguishes relative risk aversion and resistance to intertemporal substitution in climate risk modeling. Stochastic recursive preferences are introduced in a stylized numeric climate-economy model using preliminary IPCC 1998 scenarios. It shows that higher risk aversion increases the optimal carbon tax. Higher resistance to intertemporal substitution alone has the same effect as i...

We compare actual and calibrated values for the foreign exchange risk premium based on the definition in Engel (1992). Calibrated values are found from within a dynamic stochastic general equilibrium model of a small open economy consisting of risk-averse optimizing agents with unconventional preferences. We find that the equilibrium foreign exchange risk premium is a function of exogenous shoc...