Working Paper: NBER ID: w10597
Authors: David Backus; Bryan Routledge; Stanley Zin
Abstract: We provide a user's guide to exotic' preferences: nonlinear time aggregators, departures from expected utility, preferences over time with known and unknown probabilities, risk-sensitive and robust control, hyperbolic' discounting, and preferences over sets ( temptations'). We apply each to a number of classic problems in macroeconomics and finance, including consumption and saving, portfolio choice, asset pricing, and Pareto optimal allocations.
Keywords: exotic preferences; macro economics; finance; utility functions
JEL Codes: D81; D91; E1; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| exotic preferences (D11) | consumption and saving decisions (E21) |
| exotic preferences (D11) | portfolio choice (G11) |
| exotic preferences (D11) | asset pricing (G19) |
| preferences structure (D11) | economic outcomes (F61) |
| risk-sensitive control (C53) | optimal decisions (D79) |
| dynamic inconsistency in preferences (D11) | stability of economic models (C62) |
| Chew-Dekel preferences (D79) | observed behaviors in economic contexts (D91) |