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Working Paper
Parametric Control of Intertemporal Utilities under Uncertainty : Possibility and Impossibility

May 31, 2003

  • Author Seok-Kyun Hur
  • Series No. Working Paper 2003-04
  • Language English
PDF
Working Paper
Parametric Control of Intertemporal Utilities under Uncertainty : Possibility and Impossibility

May 31, 2003

  • Author Seok-Kyun Hur
  • Series No. 2003-04
  • Language English
PDF
    Summary

    I. Introduction

    II. Various Aspects of an Intertemporal Preference under Uncertainty

    III. Definitions and Notations

    IV. Possibility of Disentanglement

    V. Impossibility of Orthogonal Disentanglement

    VI. Concluding Remark

    Appendix

    Reference
This paper proves a necessary condition that a preference over intertemporal
consumption lotteries should be parametrized in order to coordinate multi-dimensional
dispensities of intertemporal choices, which requires that the number of parameters be no
less than the dimension of the dispensities. On the other hand, the paper shows that it is
impossible to identify a onto relation mapping specific parameters to a specific aspect of
intertemporal decision making under uncertainty. These two theorems indicate that the
empirical explanatory power of a dynamic stochastic model is improvable to a
satisfactory level with proper parametrization of an interetemporal utility whereas the
interpretation of simulation or empirical test outcomes in relation with the parameters
may be confusing or misleading due to the impossibility of " orthogonal separation".
 
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