NEW! Working Paper: Recursive Preferences and Ambiguity Attitudes


We illustrate the strong implications of recursivity, a standard assumption in dynamic environments, on attitudes toward uncertainty. In intertemporal consumption choice problems, recursivity always implies constant absolute ambiguity aversion (CAAA) when applying the standard dynamic extension of monotonicity. Our analysis also yields a functional equation called “generalized rectangularity”, as it generalizes the standard notion of rectangularity for recursive maxmin preferences to general certainty equivalents. Our results highlight that if uncertainty aversion is modeled as a form of convexity of preferences, recursivity limits us to only recursive variational preferences.

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Lorenzo Maria Stanca
Lorenzo Maria Stanca
Assistant Professor of Economics

I am an Assistant Professor of Economics at Collegio Carlo Alberto and University of Turin, ESOMAS department.