We study asset allocation when the conditional moments of returns are partly predictable. Rather than first model the return distribution and subsequently characterize the portfolio choice, we determine directly the dependence of the optimal portfolio weights on the predictive variables. We...

Among the most important changes brought about by the Personal Responsibility and Work Opportunity Reconciliation Act of 1996 (PRWORA) is the imposition of time limits. In this paper, we analyze a simple model in which a potential welfare recipient chooses how to allocate her time-limited...

This paper focuses on Social Security benefit claiming behavior, a take-up decision that has been ignored in the previous literature. Using financial calculations and simulations based on an expected utility maximization model, we show that delaying benefit claim for a period of time after...

When the cost of a suit exceeds the expected judgment, will a potential plaintiff be able to extract any amount in settlement from the defendant? If so, what is the source of the plaintiff's ability to extract a settlement? This essay discusses existing theories as to why (and when) plaintiffs...

This paper discusses the recent research on the consumption function that has attempted to relax the assumption of certainty equivalence. While there remain many open questions, both theoretical and empirical, it is clear that the assumption of certainty equivalence can be misleading. Under more...

Even if an asset has no fundamental uncertainty with a constant dividend process, a stochastic sentiment-driven equilibrium for the asset price exists besides the well-known fundamental equilibrium. Our paper constructs such sentiment-driven equilibria under general utility functions within an...

We present a theory of choice among lotteries in which the decision maker's attention is drawn to (precisely defined) salient payoffs. This leads the decision maker to a context-dependent representation of lotteries in which true probabilities are replaced by decision weights distorted in favor...

The Ellsberg paradox suggests that people behave differently in risky situations -- when they are given objective probabilities -- than in ambiguous situations when they are not told the odds (as is typical in financial markets). Such behavior is inconsistent with subjective expected utility...

This paper considers the appropriate stabilization objectives for monetary policy in a microfounded model with staggered price-setting. Rotemberg and Woodford (1997) and Woodford (2002) have shown that under certain conditions, a local approximation to the expected utility of the representative...

This paper introduces a tractable, structural model of subjective beliefs. Forward-looking agents care about expected future utility flows, and hence have higher current felicity if they believe that better outcomes are more likely. On the other hand, biased expectations lead to poorer decisions...