Preference heterogeneity and its equilibrium path.

This article develops a general framework for preference heterogeneity. This framework includes a discount function, a nonstandard Hamilton–Jacobi–Bellman equation (HJB) and a behavioral equation. When controlling parameters, our discount function and its HJB can reduce to those in Marín‐Solano and Patxot (2012) and among many others. In various fields, our framework can find equilibrium path in the coexistence of present bias, preference heterogeneity, and time‐inconsistency. As an example, the present paper quantifies the impact of preference heterogeneity on household financial decision‐making. It has been proven that our nonstandard HJB yields sophisticated solution (i.e., equilibrium path), while our behavioral equation brings about naive solution and precommitted solution. [ABSTRACT FROM AUTHOR]