The Myopic Property in Decision Models

Manel Baucells () and Rakesh K. Sarin ()
Additional contact information
Manel Baucells: Darden School of Business, University of Virginia, Charlottesville, Virginia 22903
Rakesh K. Sarin: UCLA Anderson School of Management, University of California Los Angeles, Los Angeles, California 90095

Decision Analysis, 2019, vol. 16, issue 2, 128-141

Abstract: We examine conditions under which decisions made in isolation provide an optimal strategy for the multiperiod problem. We focus on investment decisions with constant returns to scale. We first consider the framework of subjective expected utility. Under minimal assumptions (i.e., without assuming utility is concave), we prove that only log utility is myopically optimal when returns are serially correlated. When returns are serially independent, we generalize Mossin’s result [Mossin J (1968) Optimal multiperiod portfolio policies. J. Bus. 41(2):215–229.] that only log and power, including linear and convex, possess the myopic property. Finally, we extend the inquiry when probabilities are uncertain and the decision maker uses the recursive smooth model of ambiguity to identify an optimal strategy. We show that with serial correlation, preferences including ambiguity concerns cannot be myopic and optimal. Without correlation, we identify the exact pairs of utility and ambiguity functions that permit myopic decision rules.

Keywords: myopic property; expected utility; recursive KMM ambiguity model (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1287/deca.2018.0384 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ordeca:v:16:y:2019:i:2:p:128-141

Access Statistics for this article

More articles in Decision Analysis from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().