Intertemporal preference with loss aversion: Consumption and risk-attitude

• 成果类型: Article
• 署名作者: Choi, Kyoung Jin; Jeon, Junkee; Koo, Hyeng Keun
• 署名单位: University of Calgary; Kyung Hee University; Ajou University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2021.105380
• 发表日期: 2022
• 关键词: Consumption irreversibility; Intertemporal loss aversion; Excess sensitivity and smoothness; Asymmetric sensitivities; Consumption heterogeneity; U-shaped risky share

摘要

We study the consumption and portfolio selection problem of economic agents who face consumption irreversibility: there is disutility from changing consumption levels. The derived preference exhibits loss aversion toward a consumption gamble with the previous consumption level being the reference point. The optimization problem involves a non-monotonic and non-concave utility function. We derive a closed-form solution by combining a duality method and the super-contact principle. We show that the consumption policy involves an inaction interval for the consumption-permanent income ratio, which are consistent with various empirical regularities about consumption. The effective risk aversion derived from agents' optimal portfolio choice exhibits an inverted U-shape in the inaction interval. (c) 2021 Elsevier Inc. All rights reserved.