Strong and Weak Equilibria for Time-Inconsistent Stochastic Control in Continuous Time

• 成果类型: Article
• 署名作者: Huang, Yu-Jui; Zhou, Zhou
• 署名单位: University of Colorado System; University of Colorado Boulder; University of Sydney
• 刊物名称: MATHEMATICS OF OPERATIONS RESEARCH
• ISSN/ISSBN: 0364-765X
• DOI: 10.1287/moor.2020.1066
• 发表日期: 2021
• 页码: 428-451
• 关键词: consumption; INVESTMENT

摘要

A new definition of continuous-time equilibrium controls is introduced. As opposed to the standard definition, which involves a derivative-type operation, the new definition parallels how a discrete-time equilibrium is defined and allows for unambiguous economic interpretation. The terms strong equilibria and weak equilibria are coined for controls under the new and standard definitions, respectively. When the state process is a time-homogeneous continuous-time Markov chain, a careful asymptotic analysis gives complete characterizations of weak and strong equilibria. Thanks to the Kakutani-Fan fixed-point theorem, the general existence of weak and strong equilibria is also established under an additional compactness assumption. Our theoretic results are applied to a two-state model under nonexponential discounting. In particular, we demonstrate explicitly that there can be incentive to deviate from a weak equilibrium, which justifies the need for strong equilibria. Our analysis also provides new results for the existence and characterization of discrete-time equilibria under infinite horizon.