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Non-expected Utility, Saving and Portfolios

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  • Haliassos, Michael
  • Hassapis, Christis

Abstract

Despite increased stockholding opportunities, standard expected-utility models overpredict household participation and stock holdings. It has been suggested that departures from expected utility could resolve both puzzles. We investigate three measurable departures: (i) Kreps-Porteus preferences, (ii) Yaari's Dual Theory, and (iii) Quiggin's Rank-Dependent Utility. Improvements tend to occur in predicted portfolio composition rather than participation. They are limited under (i), questionable under (ii), and more sizeable under (iii). Contrary to priors in the literature, improvements under (iii) do not result from solutions at kinks of indifference curves. We conclude that stockholding puzzles are unlikely to be resolved through preferences alone.

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Bibliographic Info

Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 111 (2001)
Issue (Month): 468 (January)
Pages: 69-102

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Handle: RePEc:ecj:econjl:v:111:y:2001:i:468:p:69-102

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Cited by:
  1. Hatzipanayotou, Panos & Sajal Lahiri & Michael S.Michael, 2002. "Reforms of Environmental Policies in the presence of Cross-border Pollution and Two-stage Clean-up," Royal Economic Society Annual Conference 2002 97, Royal Economic Society.
  2. Michael Haliassos, Alexander Michaelides, 2000. "Portfolio Choice And Liquidity Constraints," Computing in Economics and Finance 2000 297, Society for Computational Economics.
  3. Nicholas Barberis & Ming Huang, 2006. "The Loss Aversion / Narrow Framing Approach to the Equity Premium Puzzle," NBER Working Papers 12378, National Bureau of Economic Research, Inc.
  4. Fatih Guvenen, 2005. "Reconciling Conflicting Evidence on the Elasticity of Intertemporal Substitution: A Macroeconomic Perspective," Macroeconomics 0507005, EconWPA.
  5. Michael Haliassos, 2002. "Stockholding: Recent Lessons from Theory and Computations," University of Cyprus Working Papers in Economics 0206, University of Cyprus Department of Economics.
  6. Michael Haliassos & Christis Hassapis, 1999. "Borrowing Constraints, Portfolio Choice and Precautionary Motives: Theoretical Predictions and Empirical Complications," Computing in Economics and Finance 1999 1341, Society for Computational Economics.
  7. Binswanger, Johannes, 2007. "Risk management of pensions from the perspective of loss aversion," Journal of Public Economics, Elsevier, vol. 91(3-4), pages 641-667, April.
  8. Li, Y. & Donkers, A.C.D. & Melenberg, B., 2006. "The Non- and Semiparametric Analysis of MS Models: Some Applications," Discussion Paper 2006-95, Tilburg University, Center for Economic Research.
  9. Michael Haliassos & Christis Hassapis, 1998. "Borrowing Constraints, Portfolio Choice, and Precautionary," Macroeconomics 9809008, EconWPA.
  10. Panos Pashardes & Soteroula Hajispyrou, 2002. "Consumer Demand and Welfare under Increasing Block Pricing," University of Cyprus Working Papers in Economics 0207, University of Cyprus Department of Economics.

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