We study the portfolio decision of a household with limited information-processing capacity in a setting with recursive utility. We find that rational inattention combined with a preference for early resolution of uncertainty leads to a significant drop in the share of portfolios held in risky assets, even when the departure from standard expected utility with rational expectations is small. In...

In most handwriting recognition systems, the processing steps of segmentation, recognition, decision making and postprocessing are serially taken. These systems usually use the resources exhaustively in each stage of the serial engine. Every stage is tuned to maximize global performance. However, such a paradigm is prone to miss the gloabl optimal point because the individual stages often do no...

We use purely statistical methods to determine if it is plausible that the pricing kernel can be represented as the intertemporal marginal rate of substitution of a representative agent in an endowment economy whose preferences are determined by recursive utility. Specifically we investigate regression implications of recursive utility such as the implication that the R-square of a log-linear r...

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...