A Bayesian Application of the Variational Preferences to Optimal Portfolio Choice

This letter develops a decision criterion which takes into account parameter and model uncertainty in an optimal portfolio choice problem. This criterion is a special case of the Variational Preferences, rewritten in the Bayesian statistics notations, which specifically exploits the information contained in an observed sample of assets’ returns. I provide an example to illustrate its properties and to highlight its differences with the closely related Multiplier Preferences