Scale-consistent rational planning
Seminar in Insurance and Economics
SPEAKER: Claudio Tebaldi (Bocconi University).
TITLE: Scale-consistent rational planning.
ABSTRACT: We revisit the assumptions that underlie the definition of rational planning in the presence of dynamic uncertainty. We discuss the theoretical underpinnings of recursive utility, the workhorse decision functional used in economics and finance, and introduce an alternative one that preserves time consistency while replacing the strict stationarity hypothesis with dynamic scale-invariance. We show that the resulting optimal behavior matches a number of stylized empirical facts that have been detected when observing individual decisions and collective equilibrium outcomes in financial markets.