Some properties of subjective probabilities induced by optimal expectations
AbstractIn this paper, we examine the properties of subjective probabilities induced by optimal expectations. We show that investors who follow optimal expectations underweigh small probabilities and overweigh large probabilities in a simple binary economy. This indicates that the subjective probabilities induced by optimal expectations are incompatible with experimentally observed results under the rank dependent probability assumption.
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Bibliographic InfoArticle provided by Elsevier in its journal Finance Research Letters.
Volume (Year): 7 (2010)
Issue (Month): 2 (June)
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Web page: http://www.elsevier.com/locate/frl
Optimal expectation Portfolio choice Subjective probability;
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