Solutions for Some Dynamic Problems with Uncertainty Aversion
In a discounted expected-utility problem, tomorrow's utilities are aggregated across tomorrow's states by the expectation operator. In our problems, this aggregation is accomplished by a Choquet integral of the form iudPa, where a specifies uncertainty aversion. We solve all finite-state problems by either a closed form or a finite- imensional iteration, and show that uncertainty aversion reduces the perceived return on investment, thereby decreasing the saving rate given elastic preferences and increasing the saving rate given inelastic preferences.
Citation of this paper:
Ozaki, Hiroyuki and Peter A. Streufert. "Solutions for Some Dynamic Problems with Uncertainty Aversion." Department of Economics Research Reports, (1999).