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A Risk–Neutral Characterization of Optimism and Pessimism, and its Applications

Author

Listed:
  • Yusuke Osaki

    (Risk & Sustainable Management Group, School of Economics, University of Queensland)

  • John Quiggin

    (Risk & Sustainable Management Group, School of Economics, University of Queensland)

Abstract

This note gives a simple, but useful characterization of optimism and pessimism represented by a convex and concave shift of probability weighting functions, and applies it to two comparative static analysis.

Suggested Citation

  • Yusuke Osaki & John Quiggin, 2007. "A Risk–Neutral Characterization of Optimism and Pessimism, and its Applications," Risk & Uncertainty Working Papers WP3R07, Risk and Sustainable Management Group, University of Queensland.
  • Handle: RePEc:rsm:riskun:r07_3
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    File URL: http://www.uq.edu.au/rsmg/WP/WPR07_3.pdf
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    More about this item

    Keywords

    Optimism; pessimism; rank dependent expected utility; risk–neutral decision weight.;
    All these keywords.

    JEL classification:

    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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