The Institute for Statistics and Mathematics is pleased to invite you to the next research seminar, taking place on campus:

Sascha Desmettre (Institute of Financial Mathematics and Applied Number Theory, JKU Linz)
Equilibrium Control Theory for Kihlstrom-Mirman Preferences in Continuous Time
Wednesday, May 7, 2025, 17:15, in Building D4, Room D4.0.127.

Abstract:Introduced in 1974, Kihlstrom-Mirman preferences represent a multi-attribute generalization of the standard (univariate) expected utility theory. The main appeal of this class of utilities is that, by separating the choice of the elasticity of intertemporal substitution and risk aversion, they allow to disentangle attitudes towards time and risk. We discuss in detail how this approach differs from other classes of preferences exhibiting a similar feature (for instance, Epstein-Zin-Weil recursive utility). However, when solving intertemporal choice problems, the peculiar construction of Kihlstrom-Mirman preferences induces dynamic inconsistency - that is, the dynamic programming principle fails to hold. Our main contribution is therefore to address this challenge. In doing so, we provide a formal template to address the time-inconsistency of Kihlstrom-Mirman preferences in Markovian settings by means of equilibrium control theory. As an application, we study a consumption-investment problem for an agent with constant relative risk aversion and constant elasticity of substitution.

We aim to stream all on-campus talks via Zoom. A direct link to the stream will be posted on our website.

For further information and the seminar schedule, please see:
www.wu.ac.at/en/statmath/research/resseminar