Homothetic Robust Preferences

20 Pages Posted: 10 Sep 2018 Last revised: 28 Feb 2019

See all articles by Anne Balter

Anne Balter

Tilburg University; Netspar

Ferenc Horvath

City University of Hong Kong (CityUHK)

Date Written: February 26, 2019

Abstract

We provide a novel, non-recursive representation of homothetic robust variational preferences entertained by an agent who derives utility from both consumption and terminal wealth. We find that under the assumption of constant relative risk aversion, such preferences are observationally equivalent to preferences of an otherwise identical, but more impatient non-robust agent, who evaluates his expectations under a different probability measure. Furthermore, we explicitly characterize the set of alternative models considered by the robust agent.

Keywords: Robustness, Uncertainty, Ambiguity, Homothetic Preferences, Martingale Method

JEL Classification: C61, D01, D81, G11

Suggested Citation

Balter, Anne and Horvath, Ferenc, Homothetic Robust Preferences (February 26, 2019). Available at SSRN: https://ssrn.com/abstract=3239913 or http://dx.doi.org/10.2139/ssrn.3239913

Anne Balter (Contact Author)

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC Noord-Brabant 5000 LE
Netherlands

Netspar ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Ferenc Horvath

City University of Hong Kong (CityUHK) ( email )

83 Tat Chee Avenue
Kowloon Tong
Kowloon
Hong Kong
+85234427630 (Phone)
+85234420284 (Fax)

HOME PAGE: http://www.ferenchorvath.com

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