No existing dynamic preference model can simultaneously satisfy time consistency, temporal resolution of risk indifference and the separation of time and risk preferences. In the context of the consumption-portfolio optimization problem, we derive necessary and sufficient conditions such that all three of these properties are satisfied by the dynamic ordinal certainty equivalent (DOCE) preference structure axiomatized in Selden and Stux (1978). These conditions ensure that DOCE resolute, naive and sophisticated consumption and asset demands are (i) identical and (ii) the same as the demands generated by Kreps and Porteus (1978) (KP) preferences. When the conditions are violated, the elasticity of intertemporal substitution can play a key role in determining whether the differences between resolute, naive and sophisticated demands are material and the axiomatic differences between the DOCE and KP preference models are important.
Kubler, Felix, Larry Selden, and Xiao Wei. "Time Consistency, Temporal Resolution Indifference and the Separation of Time and Risk." Columbia Business School, April 7, 2019.
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