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Dynamic consistency leads to Bayesian updating under expected utility. We ask what it implies for the updating of more general preferences. In this paper, we characterize dynamically consistent update rules for preference models satisfying ambiguity aversion. This characterization extends to regret-based models as well. As applications of our general result, we characterize dynamically consistent updating for two important models of ambiguity averse preferences: the ambiguity averse smooth ambiguity preferences (Klibanoff, Marinacci and Mukerji [Econometrica 73 2005, pp. 1849-1892]) and the variational preferences (Maccheroni, Marinacci and Rustichini [Econometrica 74 2006, pp. 1447-1498]). The latter includes max-min expected utility (Gilboa and Schmeidler [Journal of Mathematical Economics 18 1989, pp. 141-153]) and the multiplier preferences of Hansen and Sargent [American Economic Review 91(2) 2001, pp. 60-66] as special cases. For smooth ambiguity preferences, we also identify a simple rule that is shown to be the unique dynamically consistent rule among a large class of rules that may be expressed as reweightings of the Bayes' rule.

If prejudice divides and weakens the working class, then capital owners can impose more inequality without fearing unified resistance. Frustrated workers turn on each other as scapegoats, blaming their economic hardship on diversity (in terms of race, religion, ethnicity, immigration status, age, gender, education, sexual preference, and so on). If a demagogue shifts the intolerance curve upward, a multiplier process ensues: intolerance causes inequality, and inequality causes intolerance. Religious nationalism, right-wing control of the media, or a facade of democracy will shift the resistance curve rightward. Under fascism, hate speech is reinforced by police power, so both curves shift. Liberal arts education and exposure to cultural diversity may counter these shifts.

This paper explores the links between fiscal multipliers and household discount rates. We report evidence of a large and statistically significant relationship between reported rates of time preference across countries and the government expenditure multiplier. This study uses recent cross-country data on reported rates of time preferences gathered by Wang, Rieger and Hens (2011). We find that a higher reported rate of time preference is strongly associated with a larger government expenditure multiplier. Our findings may help to explain some of the differences in view over the optimal path for fiscal consolidation in Europe today, between the Germanic and Northern European countries (whose representatives appear to favour a faster fiscal retrenchment) and those in the South (who would like their required fiscal adjustment to occur less rapidly).

We analyze the effectiveness of environmental policy when consumers are subject to social influence. To this end, we build a model of consumption decisions driven by socially-embedded preferences formed under the influence of peers in a social network. This setting gives rise to a social multiplier of environmental policy. In an application to climate change, we derive Pigouvian and target-achieving carbon taxes under socially-embedded preferences. Under realistic assumptions the social multiplier is equal to 1.30, allowing to reduce the effective tax by 38%. We show that the multiplier depends on four factors: strength of social influence, initial taste distribution, network topology and income distribution. The approach provides a basis for rigorously analyzing a transition to low-carbon lifestyles and identifying complementary information and network policies to maximize the effectiveness of carbon taxation. © 2020 Elsevier Inc. ; This work was supported by an ERC Advanced Grant under the European Union's Horizon 2020 research and innovation program [grant agreement Nr. 741087 ]. I.S. acknowledges support from the Russian Science Foundation [RSF grant number 19-18-00262 ]. We have greatly benefited from comments by Stefano Carattini, Diego d'Andria, Rick van der Ploeg and Cees Withagen on an earlier version of the manuscript. We thank the three anonymous reviewers and the editor whose suggestions helped improve and clarify this manuscript. We also thank the participants of the INET Oxford Visitor Seminar and a seminar at the Mercator Research Institute on Global Commons and Climate Change. The authors declare that they have no known competing financial interests or personal relationships that could have appeared to influence the work reported in this paper.

I examine the effect of fiscal policy at the zero lower bound if households have preferences over safe assets (POSA) calibrated consistent with evidence on household savings behavior and individual discount rates, and empirical estimates of the effect of the supply of US government debt on government bond yields. POSA attenuate the effect of changes in the household's permanentincome on her consumption today and implies a wealth effect from government bonds. It therefore strongly increases the multiplier of a permanent expenditure change, moving it much closer to the multiplier of temporary expenditure changes. The result becomes even stronger with credit constrained households and firms.

This paper seeks to expand the theory of aggregate demand so as to take account of the monetary nature of exchange. The economy is represented in terms of twin circuits of income generation and financial asset transacting. Money is not extinguished when spent, but instead partakes in these twin circuits of exchange. Money embodies potential purchasing power, and the extent to which it generates spending in goods markets is affected by agents' liquidity preferences.