Hello,
I am currently working on a project that involves a utility function that includes - apart from consumption labor, and liquidity (real money balances) - a subjectively perceived risk from holding a certain type of asset. The idea is that agents get disutility from holding an asset that they do not fully trust in. Households then maximize their utility given by the following (stylized) additively separable utility function:
U = consumption - labor + liquidity - subjectively perceived risk
I wonder whether there is anything fundamentally wrong with including additional elements in utility functions?
Thank you for your time!
Best
Jonathan