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MULTIATTRIBUTE UTILITY THEORY, INTERTEMPORAL UTILITY, AND CORRELATION AVERSION
Author(s) -
Andersen Steffen,
Harrison Glenn W.,
Lau Morten I.,
Rutström E. Elisabet
Publication year - 2018
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12279
Subject(s) - counterintuitive , economics , intertemporal choice , econometrics , risk aversion (psychology) , expected utility hypothesis , function (biology) , elasticity of intertemporal substitution , mathematical economics , philosophy , growth model , epistemology , evolutionary biology , biology
Convenient assumptions about qualitative properties of the intertemporal utility function have generated counterintuitive implications for the relationship between atemporal risk aversion and the intertemporal elasticity of substitution. If the intertemporal utility function is additively separable, then the latter two concepts are the inverse of each other. We review a theoretical specification with a long lineage in the literature on multi‐attribute utility and use this theoretical structure to guide the design of a series of experiments that allow us to identify and estimate intertemporal correlation aversion. Our results show that subjects are correlation averse over lotteries with intertemporal income profiles.