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Portfolio Inertia under Ambiguity

  • Takao Asano
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    We consider individual's portfolio selection problems. Introducing the concept of ambiguity, we show the existence of portfolio inertia under the assumptions that decision maker's beliefs are captured by an inner measure, and that her preferences are represented by the Choquet integral with respect to the inner measure. Under the concept of ambiguity, it is considered that a [sigma]-algebra is not necessarily an appropriate collection of events to which a decision maker assigns probabilities. Furthermore, we study the difference between ambiguity and uncertainty by considering investors' behavior.

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    File URL: http://www.iser.osaka-u.ac.jp/library/dp/2004/DP0609.pdf
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    Paper provided by Institute of Social and Economic Research, Osaka University in its series ISER Discussion Paper with number 0609.

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    Date of creation: Jun 2004
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    Handle: RePEc:dpr:wpaper:0609
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    1. Kin Chung Lo, 1995. "Equilibrium in Beliefs Under Uncertainty," Working Papers ecpap-95-02, University of Toronto, Department of Economics.
    2. Epstein, Larry G, 1999. "A Definition of Uncertainty Aversion," Review of Economic Studies, Wiley Blackwell, vol. 66(3), pages 579-608, July.
    3. Jiankang Zhang, 1999. "Subjective Ambiguity, Expected Utility and Choquet Expected Utility," Carleton Economic Papers 99-19, Carleton University, Department of Economics, revised Aug 2002.
    4. Ghirardato, Paolo & Marinacci, Massimo, 2002. "Ambiguity Made Precise: A Comparative Foundation," Journal of Economic Theory, Elsevier, vol. 102(2), pages 251-289, February.
    5. Ghirardato, Paolo & Klibanoff, Peter & Marinacci, Massimo, 1998. "Additivity with multiple priors," Journal of Mathematical Economics, Elsevier, vol. 30(4), pages 405-420, November.
    6. Ghirardato, Paolo, 1997. "On Independence for Non-Additive Measures, with a Fubini Theorem," Journal of Economic Theory, Elsevier, vol. 73(2), pages 261-291, April.
    7. Kin Chung Lo, 1998. "Sealed bid auctions with uncertainty averse bidders," Economic Theory, Springer, vol. 12(1), pages 1-20.
    8. Zhang, Jiankang, 1999. "Qualitative probabilities on [lambda]-systems," Mathematical Social Sciences, Elsevier, vol. 38(1), pages 11-20, July.
    9. Epstein, L.G. & Zhang, J., 1998. "Subjective Probabilities on Subjectivity Unambiguous Event," RCER Working Papers 456, University of Rochester - Center for Economic Research (RCER).
    10. Dow, James & Werlang, Sergio Ribeiro da Costa, 1992. "Uncertainty Aversion, Risk Aversion, and the Optimal Choice of Portfolio," Econometrica, Econometric Society, vol. 60(1), pages 197-204, January.
    11. Gilboa, Itzhak, 1987. "Expected utility with purely subjective non-additive probabilities," Journal of Mathematical Economics, Elsevier, vol. 16(1), pages 65-88, February.
    12. Larry G. Epstein & Jiankang Zhang, 1999. "Subjective Probabilities on Subjectively Unambiguous Events," Carleton Economic Papers 99-18, Carleton University, Department of Economics.
    13. Lo, Kin Chung, 1999. "Extensive Form Games with Uncertainty Averse Players," Games and Economic Behavior, Elsevier, vol. 28(2), pages 256-270, August.
    14. Epstein Larry G. & Wang Tan, 1995. "Uncertainty, Risk-Neutral Measures and Security Price Booms and Crashes," Journal of Economic Theory, Elsevier, vol. 67(1), pages 40-82, October.
    15. Dow, James & Werlang, Sérgio Ribeiro da Costa, 1992. "Nash equilibrium under knightian uncertainty: breaking-down backward induction," Economics Working Papers (Ensaios Economicos da EPGE) 186, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
    16. Marinacci, Massimo, 2000. "Ambiguous Games," Games and Economic Behavior, Elsevier, vol. 31(2), pages 191-219, May.
    17. Ramon Casadesus-Masanell & Peter Klibanoff & Emre Ozdenoren, 1998. "Maximum Expected Utility over Savage Acts with a Set of Priors," Discussion Papers 1218, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    18. Epstein, Larry G & Wang, Tan, 1994. "Intertemporal Asset Pricing Under Knightian Uncertainty," Econometrica, Econometric Society, vol. 62(2), pages 283-322, March.
    19. Larry G. Epstein & Jiankang Zhang, 1999. "Least convex capacities," Economic Theory, Springer, vol. 13(2), pages 263-286.
    20. Casadesus-Masanell, Ramon & Klibanoff, Peter & Ozdenoren, Emre, 2000. "Maxmin Expected Utility over Savage Acts with a Set of Priors," Journal of Economic Theory, Elsevier, vol. 92(1), pages 35-65, May.
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