TA – Yinan.li@ne.su.se

We will use the paper
“Exotic preferences for macroeconomists” by Backus, Routledge and Zin (BRZ) as a
main text for many of the departures from standard preferences that we will
cover. The paper can be downloaded in a working paper version.

We will hopefully cover 5
topics, but this depends on quickly we go. The 5 topics might not necessarily
be of equal length.

There will also be 3 problem sets with TA-sessions led by Yinan Li. They can also add to the final grade in the same way as the term paper.

The final grade will be based on the total course score, which will be calculated in the following way;

The exam and the term paper each yield a maximum of 50 points and each problem set yields a maximum of 10 points. The exam points are always included in the final score. If the term paper has a higher score than the exam the term paper points are added to the exam, otherwise the exam score is multiplied by 2. This gives the intermediate score IS. The score of each question with a higher score than IS/10 is then added to IS and the final score is finally calculated by normalizing with 1+n/10, where n is the number of added question scores (0,1,2 or 3).

I will use lecture notes.
They are written largely for myself but can be useful also for you. I will
prepare them along the way so they might change. Updated versions of lecture
notes in tex-format can be retrieved from http://hassler-j.iies.su.se/COURSES/NewPrefs/notes/notes.tex or in pdf from http://hassler-j.iies.su.se/COURSES/NewPrefs/notes/notes.pdf

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BRZ chapter 2-4*, “Exotic preferences for macroeconomists,” with B. Routledge and S. Zin, NBER, Macroeconomics Annual 2004.

Bansal and Yaron 2005*, Risks for the Long Run: A Potential Resolution of Asset Pricing Puzzles, Journal of Finance, forthcoming.

Dolmas and Wynne (1998)*, “Risk Preferences and the Welfare Cost of Business Cycles”, Review of Economic Dynamics, 1, 1998.

Kimball and Weil (2003)*, “Precautionary Saving and Consumption Smoothing Across Time and Possibilities”, mimeo.

Shi (1994)*, “Weakly Nonseparable Preferences and Distortionary Taxes in a Small Open Economy”, International Economic Review, Nov., 1994.

Schmitt-Grohe and Uribe (2003)*, “Closing small open economy models”, Journal of International Economics, October 2003.

Starmer (2000)* “Developments in Non-Expected Utility Teory: The Hunt for a Descriptive Theory of Choice under Risk”, Journal of Economic Literature, June,2000.

Weil (1990)*, “Nonexpected Utility in Macroeconomics”, Quarterly Journal of Economics, Feb., 1990

Weil (1989)*, “The Equity Premium Puzzle and the Risk-Free Rate Puzzle”, Journal of Monetary Economics, 24, 1989.

Kreps an Porteus (1978), “Temporal Resolution of Uncertainty and Dynamic Choice Theory”, Econometrica, Jan., 1978.

Johnsen and Donaldson (1985), “The Structure of Intertemporal Preferences under Uncertainty and Time Consistent Plans”, Econometrica, Nov. 1985.

Koopmans (1960), “Stationary Ordinal Utility and Impatience”, Econometrica, April 1960.

Epstein and Zin (1989), “Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: A Theoretical Framework”, Econometrica, July, 1989.

Epstein and Zin (1991), “Substitution, Risk Aversion, and the Temporal Behavior of Consumption and Asset Returns: An Empirical Analysis”, Journal of Political Economy, April, 1991.

Farmer (1990) , “Rince Preferences”, Quarterly Journal of Economics, Feb., 1990.

Benzoni, Luca; Collin-Dufresne, Pierre; Goldstein, Robert S., “Can Standard Preferences Explain the Prices of out of the Money S&P 500 Put Options” NBER Working Papers: 11861

Alonso
(2005)*, “Ambiguity in a two-country world”, mimeo,

__Epstein (2001)*,__
“Sharing Ambiguity”, American
Economic Review, May, 2001.

__Epstein and Schneider (2004)*__, ”Ambiguity, information quality
and asset pricing”, mimeo,

__Mukerji and Tallon (2003)*,__
“Ambiguity aversion and the
absence of wage indexation”, Journal of Monetary Economics, 51, 2004.

Dow and Werlang (1992), “Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio”, Econometrica, Jan. 1992.

__Gilboa Schmeidler
(1989), __ “Maximin
Expected Utility with Non-Unique Prior”, Journal of Mathematical Economics, 18,
1989.

Amador and Werning (2003)*, “Commitment vs. Flexibility”, NBER WP 1051, Dec., 2003.

Barro (1999)*, “Ramsey Meets Laibson in the Neoclassical Growth Model”,

Laibson (1997)*, Golden Eggs and Hyperbolic Discounting, QJE, 112:2, May, 1997.

Krusell, Kuruscu
and Smith (2005)*, “Temptation and Taxation”, mimeo,

Gul and Pesendorfer (2001), “Temptation and Self-Control”, Econometrica, Nov., 2001.

Campbell and Cochrane (1999)*, “By force of Habits”, A consumption-Based Explanation of Aggregate Stock-Market Behavior”, Journal of Political Economy, 107, 1999.

Abel (1991), “Asset Pricing under habit formation and keeping up with the Joneses”, NBER WP 3279

Ravn, Schmitt-Grohe and Uribe (2004)*, “Deep Habits”, mimeo, European University Institute.

Gali (1994), ”Keeping up with the Joneses: Consumption Externalities, Portfolio Choice and Asset Prices”, Journal of Money, Credit and Banking, Feb., 1994.

Lettau and Uhlig (2000)*, ”Can Habit Formation Be Reconciled with Business Cycle Facts?”, Review of Economic Dynamics, Jan., 2000.

Boldrin, Christiano and Fisher* (2001), “Habit Persistence, Asset Returns, and the Business Cycle”, American Economic Review, March, 2001.

Gruber and Koszegi (2001), ” Is addiction “rational”?: Theory and evidence”, QJE, Nov. 2001.

Krusell and Stavlöt (2005)*,
Origins of the Diversity of Culture Consumption, Ph.D. Thesis, IIES.,

Rabin (2000)*, “Risk aversion and Expected Utility Theory: A Calibration Theorem”, Econometrica, Sep. 2000.

Benartzi and Thaler (1995)* ,“Myopic Loss Aversion and the Equity Premium Puzzle”,Quarterly Journal of Economics, Feb. 1995.

Bowman, Minehart and Rabin (1999)*, “Loss aversion in a consumption-savings model”, Journal of Economic Behavior & Organization

Vol. 38 (1999).

Koszegi, Botond and Mathew Rabin*, (2007), A model of Reference-Dependent Preferences, Quarterly Journal of Economics, forthcoming.

Hassler, John and José V. Rodríguez Mora*, Political Commitment and Loss-Aversion, mimeo, IIES.