In this paper, we develop a new dynamic programming approach for solving an optimal retirement model in a two-dimensional incomplete market, which is induced by forced unemployment risk and borrowing constraints. We show that the two dimensions jointly affect an individual's optimal consumption,...

We study the consumption and portfolio selection problem of an agent who faces consumption irreversibility: there is disutility from changing consumption levels. The derived preference exhibits intertemporal loss aversion toward consumption changes with the previous consumption level being the...

We investigate the dynamic consumption and portfolio selection problem of an agent who has an intertemporal preference with loss and risk aversion, as proposed by Choi et al. (2019a). We disentangle the effects of loss aversion from those of risk aversion on risk taking. We show by simulation...

We present an empirical framework to analyze real-world sales-force compensation schemes. The model is flexible enough to handle quotas and bonuses, output-based commission schemes, as well as "ratcheting" of compensation based on past performance, all of which are ubiquitous in actual...

This paper argues that constraining people to choose consumption and labor under finite Shannon capacity produces results in line with U.S. business cycle data as well as secular movements in consumption and labor supply. The model has simple partial equilibrium setting in which risk averse...

Dynamic choices of cognitively constrained individuals have been ascribed, by the rational inattention theory, as being a filtering problem, in which the attentional intensity is consciously elected. Human attention, however, is not merely of voluntary intensity; it is rather of volitional...

This article investigates the effects of small proportional transaction costs on lifetime consumption and portfolio decisions. The extant literature has focused on agents with additive utility; here, we argue that this is essentially without loss of generality at the leading order for small...

This paper investigates the optimal retirement of an individual in the presence of involuntary unemployment risks and borrowing constraints in a complete market with frictions. An intensity model and loading factors are used to illustrate these involuntary unemployment risks and frictions in...

We study a class of optimization problems involving linked recursive preferences in a continuous-time Brownian setting. Such links can arise when preferences depend directly on the level or volatility of wealth, in principal-agent (optimal compensation) problems with moral hazard, and when the...

In this paper we propose a new strategy for comparing the behavior of a hyperbolic discounter who possesses self-control problems to an exponential discounter who does not. Our strategy controls for inherent differences in overall levels of impatience across discount functions, which thereby...