Intertemporal Preference with Loss Aversion: Aggregate Consumption and Asset Management

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 that the model can match well the moments of US aggregate consumption data. The model can be applied to practical asset management designed to produce stable cash flows. We also provide extensions of the model including the durable goods and multiple goods.

Keywords: Consumption irreversibility, intertemporal loss aversion, consumption autocorrelation, asset management, durable good, multiple goods

JEL Classification: C61, D11, D15, E21, G11

Suggested Citation: Suggested Citation

Choi, Kyoung Jin and Jeon, Junkee and Koo, Hyeng Keun, Intertemporal Preference with Loss Aversion: Aggregate Consumption and Asset Management (January 12, 2020). Available at SSRN: https://ssrn.com/abstract=3394666 or http://dx.doi.org/10.2139/ssrn.3394666