We develop one-parameter preference functions for payoff situations in which the decision maker knows the potential states of nature and their payoffs, but not the probability of these states (Knightian uncertainty). Focusing on the extreme version of Knightian uncertainty, we do not employ...

We study a continuous-time optimal consumption and portfolio selection problem when an economic agent with recursive utility has stochastic income and debt-to-income borrowing limits. The optimal portfolio depends on the elasticity of intertemporal substitution (EIS) due to the borrowing...

For Savagean preferences, it has been proven in the literature that simultaneous utilitarian aggregation of beliefs and utilities are impossible when the beliefs are countably additive probability measures on a σ-algebra. This note shows that this negative result carries over to the case where...

We derive a general formula for the elasticity of substitution of a large class of smooth utility functions. This formula depends critically on two terms: the marginal rate of substitution and the elasticity of marginal utility, which may be interpreted according to the context either as the...

In the study of rational expectations equilibria, negative exponential and linear utility with a quadratic holding cost are two most commonly used classes of utility functions. Under the classical normality assumption, we show the functional equivalence in the cases of both exogenous and...