Associate Professor at the University of Amsterdam
Research Fellow of the Tinbergen Institute
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Macroeconomic and Monetary Theory, Dynamic Stochastic General Equilibrium Models
Income Inequality, Consumption Inequality and Prospect Theory (2015), with Vadym Lepetyuk.
Abstract: The rise in within-group consumption inequality in response to the increase in within-group income inequality over the last three decades in the U.S. is puzzling to expected-utility-based incomplete market models. Limited commitment models exhibit too little consumption inequality while standard incomplete markets models tend to predict too much consumption inequality. We show that a model with limited commitment and chance attitudes, as emphasized by prospect theory, improves the fit to the data. Chance attitudes, such as optimism and pessimism, imply that the households attribute a higher weight to high and low outcomes compared to their objective probabilities. For realistic values of risk aversion and of chance attitudes, the incentives for households to share the idiosyncratic risk decrease. The latter effect endogenously amplifies the increase in consumption inequality relative to the expected utility model, thereby improving the fit to the data.
I'm organizing the Tinbergen Macro Seminar Series.