The Working Papers should not be reported as representing the views of the Banco Central do Brasil. The views expressed in the papers are those of the author(s) and do not necessarily reflect those of the Banco Central do Brasil. This paper characterizes ambiguity averse preferences in the absence of the completeness axiom. We axiomatize multiple selves versions of some of the most important ex...

The stability of optimal plans with respect to information is studied given the representation of information as sub-σ -fields of a probability space. A decision maker is constrained to choose a plan measurable with respect to her information. Continuity is derived by characterizing the continuity of the measurability constraint correspondence and then applying a generalized maximum theorem. Th...

One of the assumptions of recursive multiple-priors utility (Epstein and Schneider, J. Econ. Theory, 113(1) (2003), 1-31) is that conditional preferences at every node satisfy an intertemporal version of the multiple-priors axioms (Gilboa and Schmeidler, J. Math. Econ., 18(2) (1989) 141-153). This note weakens this assumption: Given that conditional preferences depend only on the continuations ...

Using the Hamilton-Jacobi-Bellman equation, we derive both a Keynes-Ramsey rule and a closed form solution for an optimal consumption-investment problem with labor income. The utility function is unbounded and uncertainty stems from a Poisson process. Our results can be derived because of the proofs presented in the accompanying paper by Sennewald (2006). Additional examples are given which hig...

We study the representative consumer’s risk attitude and efficient risk-sharing rules in a singleperiod, single-good economy in which consumers have homogeneous probabilistic beliefs but heterogeneous risk attitudes. We prove that if all consumers have convex absolute risk tolerance, so must the representative consumer. We also identify a relationship between the curvature of an individual cons...

Both climate change and technical change are uncertain. In this paper we combine economics and decision analysis to incorporate the uncertainty of technical change into climate change policy analysis. We present the results of an expert elicitation on the prospects for technological change in advanced solar photovoltaics. We then use the results of the expert elicitations as inputs to the MiniC...

Behavioral economics struggles to explain why people sometimes evaluate outcomes separately (narrow bracketing of mental accounts) and sometimes jointly (broad bracketing). We develop a theory of endogenous bracketing, where people set goals to tackle self-control problems. Goals induce reference points that make substandard performance painful. Evaluating goals in a broadly bracketed mental ac...

We present a descriptive model of choice with normative foundations based on how the brain is thought to represent value. An individual’s behavior is fully described by two primitives: an individual’s expectation and one free parameter we call “predisposition”. The model captures the same apparent preference phenomena illustrated by Prospect Theory but unlike Prospect Theory accounts for indivi...

In the context of the centipede game this paper discusses a solution concept for extensive games that is based on subgame perfection and uncertainty aversion. Players who deviate from the equilibrium path are considered nonrational. Rational players who face non-rational opponents face genuine uncertainty and may have non-additive beliefs about their future play. Rational players are boundedly ...

A univariate real-valued function is said to be completely monotone if it takes positive values and alternate the signs of its higher order derivatives, starting from everywhere negative first derivatives. We prove that the representative consumer’s discount factor of a continuous-time economy under uncertainty is a power function of some completely monotone function of time satisfying certain ...