Time consistency and risk averse dynamic decision models: Definition, interpretation and practical consequences

This paper aims at resolving a major obstacle to practical usage of time-consistent risk-averse decision models. The recursive objective function, generally used to ensure time consistency, is complex and has no clear/direct interpretation. Practitioners rather choose a simpler and more intuitive formulation, even though it may lead to a time inconsistent policy. Based on rigorous … Read more

Time consistency and risk averse dynamic decision models: Definition, interpretation and practical consequences

This paper aims at resolving a major obstacle to practical usage of time-consistent risk-averse decision models. The recursive objective function, generally used to ensure time consistency, is complex and has no clear/direct interpretation. Practitioners rather choose a simpler and more intuitive formulation, even though it may lead to a time inconsistent policy. Based on rigorous … Read more