Ambiguity preferences are important to explain human decision-making in many areas in economics and finance. To measure individual ambiguity preferences, the experimental economics literature advocates using incentivized laboratory experiments. Yet, laboratory experiments are costly and require a lot of time and administrative effort. This study develops an ambiguity preference survey module th...

The purpose of this paper is to suggest a new theory of portfolio selection which is based on evolutionary reasoning in simple repeated market situations. According to this new point of view the ultimate success of a portfolio strategy is measured by the wealth share the strategy is eventually able to conquer in an evolutionary process of market selection. We identify a simple portfolio strateg...

We show how optimal saving in a two-period model is affected when prudence and risk aversion of the underlying utility function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate and the pure time discount rate, there is distributional neutrality between the two periods. Otherwise, changes of risk aversion that affect the distribu...

This paper shows that the notions of prudence, temperance, edginess, and, more generally, risk apportionment of any degree are the consequences of the natural idea that the sensitivity to detrimental changes should decrease with initial wealth. In the setting of Epstein & Tanny (1980), this turns out to be equivalent to the supermodularity of the expected utility for some specific 4-state lotte...

In this paper we extend the results of recent studies on the existence of equilibrium in finite dimensional asset markets for both bounded and unbounded economies. We do not assume that the individual’s preferences are complete or transitive. Our existence theorems for asset markets allow for short selling. We shall also show that the equilibrium achieves a constrained core within the same fram...

In this paper we survey recent works on rational inattention (RI) in macroeconomics within the dynamic linear-quadratic-Gaussian (LQG) setting. We first discuss how RI affects consumption smoothness and sensitivity, precautionary savings, asset pricing, portfolio choice, and aggregate fluctuations in the univariate case. We then discuss the applications of RI to macroeconomic models of permanen...

Ambiguity preferences are important to explain human decision-making in many areas in economics and finance. To measure individual ambiguity preferences, the experimental economics literature advocates using incentivized laboratory experiments. Yet, laboratory experiments are costly and require a lot of time and administrative effort. This study develops an ambiguity preference survey module th...

Tobin (1958) has argued that in the face of potential capital losses on bonds it is reasonable to hold cash as a means to transfer wealth over time. It is shown that this assertion cannot be sustained taking into account the evolution of wealth of cash holders versus non cash holders. Cash holders will be driven out of the market in the long run by traders who only use a (risky) long-lived asse...

This paper studies the dynamics of durable and nondurable consumption under two alternative assumptions about information updating by households — rational inattention and sticky expectations. We find that sticky expectations due to a fixed cost does a better job of reproducing the infrequent adjustments at the individual level and the slow adjustments at the aggregate level. We then show that ...

We show how optimal saving in a two-period model is affected when prudence and risk aversion of the underlying utility function change. Increasing prudence alone will induce higher savings only if, for certain combinations of the interest rate and the pure time discount rate, there is distributional neutrality between the two periods. Otherwise, changes of risk aversion that affect the distribu...