Axiomatic Foundations of Multiplier Preferences

33 Pages Posted: 17 Dec 2009

See all articles by Tomasz Strzalecki

Tomasz Strzalecki

Harvard University - Harvard Institute of Economic Research

Date Written: December 1, 2009

Abstract

This paper axiomatizes the robust control criterion of multiplier preferences introduced by Hansen and Sargent (2001). The axiomatization relates multiplier preferences to other classes of preferences studied in decision theory, in particular the variational preferences, recently introduced by Maccheroni, Marinacci and Rustichini (2006). The paper also establishes a link between the parameters of the multiplier criterion and the observable behavior of the agent. This link enables measurement of the parameters on the basis of observable choice data and provides a useful tool for applications.

Keywords: Ambiguity aversion, model uncertainty, robustness

Suggested Citation

Strzalecki, Tomasz, Axiomatic Foundations of Multiplier Preferences (December 1, 2009). Harvard Institute of Economic Research Discussion Paper No. 2181, Available at SSRN: https://ssrn.com/abstract=1523822 or http://dx.doi.org/10.2139/ssrn.1523822

Tomasz Strzalecki (Contact Author)

Harvard University - Harvard Institute of Economic Research ( email )

Department of Economics
200 Littauer Center
Cambridge, MA 02138
United States