Recrusive Utility and Parameter Uncertainty

Abstract

We explore how the Epstein-Zin utility captures an agent's sensitivity to parameter uncertainty. Our main result is a closed-form representation of the Epstein-Zin utility for an i.i.d. consumption process with unknown parameter, as the discount factors approaches 1. In this representation, the coefficient of relative risk aversion characterizes the attitude to parameter uncertainty.

Type

Working Paper

Author(s)

Nabil Al-Najjar, Eran Shmaya

Date Published

2018

Citations

Al-Najjar, Nabil, and Eran Shmaya. 2018. Recrusive Utility and Parameter Uncertainty.

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