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Risk Preferences may be Time Preferences: A Comment on Andreoni and Sprenger (2012)

Schmidt, Ulrich - Institut für Weltwirtschaft (IfW) - 2014

can allocate money between two different points of time under the condition of risk. A&S claim that their results refute … discounted expected utility (DEU) as well as prospect theory and other models relying on probability weighting. In this note I …

Persistent link: https://www.econbiz.de/10010886922

A tale of two debt crises: a stochastic optimal control analysis

Stein, Jerome L. - Institut für Weltwirtschaft (IfW) - 2009

Banks should evaluate whether a borrower is likely to default. The author applies several techniques in the extensive mathematical literature of stochastic optimal control/dynamic programming to derive an optimal debt in an environment where there are risks on both the asset and liabilities...

Persistent link: https://www.econbiz.de/10008561122

Chance Theory: A Separation of Riskless and Risky Utility

Schmidt, Ulrich; Horst, Zank - Institut für Weltwirtschaft (IfW) - 2013

We present a preference foundation for Chance Theory (CT), a model of decision making under uncertainty where the … and the potential increments over it are evaluated by subjective expected utility with a risky utility function u. In … contrast to earlier approaches with models that aimed at separating riskless and risky utility, CT does not violate basic …

Persistent link: https://www.econbiz.de/10010886918

Explaining the harmonic sequence paradox

Schmidt, Ulrich; Zimper, Alexander - Institut für Weltwirtschaft (IfW) - 2011

According to the harmonic sequence paradox (Blavatskyy 2006), an expected utility decision maker's willingness … paradox only applies to time-patient decision makers whereas the paradox is easily avoided if time-impatience is introduced …-to-pay for a gamble whose expected payoffs evolve according to the harmonic series is finite if and only if his marginal utility …

Persistent link: https://www.econbiz.de/10009216280

Current Account Imbalances and Income Inequality: Theory and Evidence

Al-Hussami, Fares; Remesal, Álvaro Martín - Institut für Weltwirtschaft (IfW) - 2012

In this paper we analyze theoretically and empirically the impact of an increase in income inequality on the current account balance. We develop a model with consumption externalities and heterogeneous agents which explains how an increase in income inequality can affect negatively or positively...

Persistent link: https://www.econbiz.de/10010886828

Boats and tides and "Trickle Down" theories: What economists presume about wellbeing when they employ stochastic process theory in modeling behavior

Anderson, Gordon - Institut für Weltwirtschaft (IfW) - 2012

Aphorisms that "Rising tides raise all boats" or that material advances of the rich eventually "Trickle Down" to the poor are really maxims regarding the nature of stochastic processes that underlay the income/wellbeing paths of groups of individuals. This paper looks at the implications for the...

Persistent link: https://www.econbiz.de/10010956065

Variable Retirement and the Effects of Social Insurance on Savings, Wealth, and Welfare

Turnovsky, Stephen J.; Bruce, Neil - Institut für Weltwirtschaft (IfW) - 2007

We construct a Blanchard-style overlapping generations model consisting of long-lived individuals who have uninsurable idiosyncratic risk resulting from uncertain retirement periods and medical costs in retirement. Without social insurance, such individuals must save for these eventualities. We...

Persistent link: https://www.econbiz.de/10005083411

Confronting the Representative Consumer with Household-Size Heterogeneity

Koulovatianos, Christos; Schröder, Carsten; Schmidt, Ulrich - Institut für Weltwirtschaft (IfW) - 2010

Much analysis in macroeconomics empirically addresses economy-wide incentives behind consumer/investment choices by using insights from the way a single representative household would behave. Heterogeneity at the micro level can jeopardize attempts to back up the representative consumer...

Persistent link: https://www.econbiz.de/10008727755

The Welfare Costs of HIV/AIDS in Eastern Europe: An Empirical Assessment Using the Economic Value-of-Life Approach

Fimpel, Julia; Stolpe, Michael - Institut für Weltwirtschaft (IfW) - 2006

Based on the aggregation of individual willingness-to-pay for a statistical life, we calibrate an intertemporal optimization model to determine the aggregate welfare losses from HIV/AIDS in 25 Eastern European countries. Assuming a discount rate of three percent, we find a total welfare loss for...

Persistent link: https://www.econbiz.de/10005755131

Reconsidering the common ratio effect: The roles of compound independence, reduction, and coalescing

Schmidt, Ulrich; Seidl, Christian - Institut für Weltwirtschaft (IfW) - 2014

-dependent utility or cumulative prospect theory) …

Persistent link: https://www.econbiz.de/10010886877