In Chapter 20 of the book Economic Dynamics in Discrete Time, named "Recursive Utility", the author asserts that the Time-Additive Expected Utility Model (TAEU) has some shortcomings when applied to dynamic economic models. He lists them as follows:
- Constant marginal rate of substitution between consecutive periods. One of the consequences of this is that a consumer that faces a given interest rate, would either save with no limit, or borrow without limit (except when the subjective discount factor equals the interest rate).
- TAEU implies that the elasticity of intertemporal substitution is equal to the inverse of the relative risk aversion coefficient.
- TAEU implies indifference to the timing of the resolution of uncertainty.
- TAEU cannot explain experimental anomalies such as the Ellsberg Paradox, etc.
Then he introduces Recursive Utility (RU) as a class of preferences developed to overcome these issues. He then proceeds to study the properties of RU, without stopping to study these "shortcomings".
I am interested in the following: even though I could try to derive the anomalies myself, is there a article/textbook/survey article that studies formally (by formally I mean in a decision theoretic fashion, i.e studying the axioms and their effect on the representation) the structure of TAEU and show formally the shortcomings mentioned above?
The author offers references for textbook and survey treatments of RU, but not the TAEU.
Thank you very much for any comment and help!