Questions tagged [uncertainty]

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First order condition of the sequence problem

Consider the standard permanent income model: $$\max_{\{c_t\}_{t=0}^\infty, \{b_{t+1}\}_{t=0}^\infty} \mathbb{E}_0 \left\{ \sum_{t=0}^\infty \beta^t u(c_t)\right\}$$ s.t. $$c_t + b_t = R^{-1} b_{t+1} +...
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Probability of states of nature

I've been given the following question and would really appreciate any help on part a. I've looked over all of my resources for this course and we have always been given the probability of the ...
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19 views

Dominated lotteries in CPE

I have been looking into expectation-based loss aversion following Kőszegi-Rabin (2005, 2007). In particular, I find their choice-acclimating personal equilibrium (CPE) interesting, but it has a ...
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54 views

Archimedean but not mixture continuous

In the context of preferences on a set of lotteries on a finite set $X$, what is an example of a preference that is independent, Archimedean but not mixture continuous? I know the mixture continuous ...
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Incomplete markets vs complete markets in permanent income model

Consider the standard permanent income model: $$\max_{\{c_t\}_{t=0}^\infty, \{b_{t+1}\}_{t=0}^\infty} \mathbb{E}_0 \left\{ \sum_{t=0}^\infty \beta^t u(c_t)\right\}$$ s.t. $$c_t + b_t = R^{-1} b_{t+1} +...
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15 views

Kreps Porteus Certainty Equivalent Intuition

In Epstein-Zin recursive preferences, the Kreps-Porteus certainty equivalent is defined by \begin{equation} \mathcal{R}_t(V_{t+1}) = (\mathbb{E}_t V_{t+1}^{1 - \gamma})^{1 /(1 - \gamma)}. \end{...
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22 views

Brownian motion - expected value

Could somebody explain why the expected value of Brownian motion is zero? Why is it important in economics? Thanks!
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53 views

Indiference between two lotteries

Suppose that a binary relation satisfies only: Independence axiom: $L≿L′⟺α\circ L+(1−α)\circ L′′≿α\circ L′+(1−α) \circ L′′$ Reduction to simple lotteries: For all $g$, $g~g'$, $g'$ is the simple ...