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Keynesian Utilities: Bulls and Bears

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We propose Keynesian utilities as a new class of non-expected utility functions representing the preferences of investors for optimism, defined as the composition of the investor's preferences for risk and her preferences for ambiguity. The optimism or pessimism of Keynesian utilities is determined by empirical proxies for risk and ambiguity. Bulls and bears are defined respectively as optimistic and pessimistic investors. The resulting family of Afriat inequalities are necessary and sufficient for rationalizing the asset demands of bulls and bears with Keynesian utilities.

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  • Anat Bracha & Donald J. Brown, 2013. "Keynesian Utilities: Bulls and Bears," Cowles Foundation Discussion Papers 1891, Cowles Foundation for Research in Economics, Yale University.
    • Handle: RePEc:cwl:cwldpp:1891
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    1. Aumann, Robert J, 1987. "Correlated Equilibrium as an Expression of Bayesian Rationality," Econometrica, Econometric Society, vol. 55(1), pages 1-18, January.
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    6. Agustin Roitman, 2011. "Precautionary Savings in a Small Open Economy Revisited," IMF Working Papers 2011/253, International Monetary Fund.
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    8. Hayne E. Leland, 1968. "Saving and Uncertainty: The Precautionary Demand for Saving," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 82(3), pages 465-473.
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    1. Oliver Bunn & Caterina Calsamiglia & Donald J. Brown, 2013. "Testing for Fictive Learning in Decision-Making under Uncertainty," Cowles Foundation Discussion Papers 1890, Cowles Foundation for Research in Economics, Yale University.
    2. Donald J. Brown & Oliver Bunn & Caterina Calsamiglia & Donald J. Brown, 2013. "Fictive Learning in Choice under Uncertainty: A Logistic Regression Model," Cowles Foundation Discussion Papers 1890R, Cowles Foundation for Research in Economics, Yale University, revised Mar 2014.

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    More about this item

    Keywords

    Uncertainty; Optimism; Afriat inequalities;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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