Some properties of subjective probabilities induced by optimal expectations

In this paper, we examine the properties of subjective probabilities induced by optimal expectations. We show that investors who follow optimal expectations underweigh small probabilities and overweigh large probabilities in a simple binary economy. This indicates that the subjective probabilities induced by optimal expectations are incompatible with experimentally observed results under the rank dependent probability assumption.

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Year of publication:	2010
Authors:	Iwaki, Hideki ; Osaki, Yusuke
Published in:	Finance Research Letters. - Elsevier, ISSN 1544-6123. - Vol. 7.2010, 2, p. 98-102
Publisher:	Elsevier
Keywords:	Optimal expectation Portfolio choice Subjective probability

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008499373