f]) and risk premium for different values of the parameters describing
discount factor ([beta]) and risk aversion ([alpha]).
In the benchmark scenario, we also assume that the utility function is logarithmic and additively separable, and the distribution of
discount factors is uniform.
For example, in the case where the
discount factor is set to 0.
We assume that, in the second period, individuals choose the lottery with the highest expected utility, from the point of view of their alcohol
discount factor [delta](a).
The rationale for why the stochastic
discount factor is much larger in the peso state than in the non-peso states is as follows.
We follow their approach and introduce shocks to the preference
discount factor as follows: for 1993 to 1995, 2%, 1%, and 1%, respectively and for 1999, 2%.
We consider bidders to be "impatient" if the
discount factor falls below the critical
discount factor.
The coefficient is a
discount factor that brings back to t (present value) that $1 in t+1.
Finally, equilibrium prices, profits, innovation, and consumer surplus are all increasing in the consumer's
discount factor.
where [RHO] (s) denotes the current price of an asset in state s; x (s) denotes the payments delivered by the asset in state s; and m (s, s') denotes the stochastic
discount factor from state s today to state s' tomorrow, that is, the function that is, the function that determines the equivalence between current period dollars in state s and next period dollars in state s'.
Section V presents
discount factor tables and describes a supporting document for one of the standards.
A long list of empirical failures called puzzles come from applying the stochastic
discount factor implied by that Euler equation.
