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On Portfolio Choice with Savoring and Disappointment

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  • Elyès Jouini

    () (CEREMADE - CEREMADE - CEntre de REcherches en MAthématiques de la DEcision - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Paul Karehnke

    (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

  • Clotilde Napp

    () (DRM - Dauphine Recherches en Management - Université Paris-Dauphine - CNRS - Centre National de la Recherche Scientifique)

Abstract

We revisit the model proposed by Gollier and Muermann (see Gollier, C. and A. Muermann, 2010, Optimal choice and beliefs with exante savoring and ex-post disappointment, Management Sci., 56, 1272-1284, hereafter GM). In GM, for a given lottery, agents form anticipated expected payoffs and the set of possible anticipations is assumed to be exogenously fixed. We rather propose sets of possible anticipations which are endogenously determined. This permits to compare and evaluate in a consistent manner lotteries with different supports and to revisit the portfolio choice problem. We obtain new conclusions and interesting insights. Our extended model can rationalize a variety of empirically observed puzzles like a positive demand for assets with negative expected returns, preference for skewed returns and under-diversification of portfolios.

Suggested Citation

  • Elyès Jouini & Paul Karehnke & Clotilde Napp, 2013. "On Portfolio Choice with Savoring and Disappointment," Post-Print halshs-00927267, HAL.
  • Handle: RePEc:hal:journl:halshs-00927267
    DOI: 10.1287/mnsc.2013.1767
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00927267
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    References listed on IDEAS

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    1. Markus K. Brunnermeier & Jonathan A. Parker, 2005. "Optimal Expectations," American Economic Review, American Economic Association, vol. 95(4), pages 1092-1118, September.
    2. Christian Gollier & Alexander Muermann, 2010. "Optimal Choice and Beliefs with Ex Ante Savoring and Ex Post Disappointment," Management Science, INFORMS, vol. 56(8), pages 1272-1284, August.
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    1. repec:kap:theord:v:84:y:2018:i:3:d:10.1007_s11238-017-9610-3 is not listed on IDEAS
    2. repec:eee:jeborg:v:148:y:2018:i:c:p:34-45 is not listed on IDEAS
    3. Schneider, C.A.R. & Spalt, Oliver, 2016. "Conglomerate investment, skewness, and the CEO long shot bias," Other publications TiSEM 5d9321e2-35ea-40f9-9eae-4, Tilburg University, School of Economics and Management.
    4. repec:kap:theord:v:84:y:2018:i:1:d:10.1007_s11238-017-9629-5 is not listed on IDEAS
    5. repec:oup:revfin:v:21:y:2017:i:6:p:2169-2197. is not listed on IDEAS

    More about this item

    Keywords

    endogenous beliefs; anticipatory feelings; disappointment; optimism; portfolio choice; skewness; under-diversification;

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