Generalized stochastic differential utility and preference for information

Authors
Citation
Lazrak, Ali, Generalized stochastic differential utility and preference for information, Annals of applied probability , 14(4), 2004, pp. 2149-2175
ISSN journal
10505164
Volume
14
Issue
4
Year of publication
2004
Pages
2149 - 2175
Database
ACNP
SICI code
Abstract
This paper develops, in a Brownian information setting, an approach for analyzing the preference for information, a question that motivates the stochastic differential utility (SDU) due to Duffie and Epstein [Econometrica 60 (1992) 353.394]. For a class of backward stochastic differential equations (BSDEs) including the generalized SDU [Lazrak and Quenez Math. Oper. Res. 28 (2003) 154.180], we formulate the information neutrality property as an invariance principle when the filtration is coarser (or finer) and characterize it. We also provide concrete examples of heterogeneity in information that illustrate explicitly the nonneutrality property for some GSDUs. Our results suggest that, within the GSDUs class of intertemporal utilities, risk aversion or ambiguity aversion are inflexibly linked to the preference for information.