Some properties of subjective probabilities induced by optimal expectations

Hideki Iwaki and Yusuke Osaki

Finance Research Letters, 2010, vol. 7, issue 2, 98-102

Abstract: 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.

Keywords: Optimal; expectation; Portfolio; choice; Subjective; probability (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:7:y:2010:i:2:p:98-102

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