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Keynesian Utilities: Bulls and Bears

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  • Anat Bracha
  • Donald Brown

Abstract

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 Brown, 2013. "Keynesian Utilities: Bulls and Bears," Levine's Working Paper Archive 786969000000000792, David K. Levine.
    • Handle: RePEc:cla:levarc:786969000000000792
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    Cited by:

    1. Oliver Bunn & Caterina Calsamiglia & Donald Brown, 2013. "Testing for Fictive Learning in Decision-Making Under Uncertainty," Levine's Working Paper Archive 786969000000000660, David K. Levine.
    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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    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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