On Portfolio Choice with Savoring and Disappointment

Elyès Jouini (), Paul Karehnke and Clotilde Napp

Management Science, 2014, vol. 60, issue 3, 796-804

Abstract: We revisit the model proposed by Gollier and Muermann [Gollier C, Muermann A (2010) Optimal choice and beliefs with ex ante savoring and ex post disappointment. Management Sci. 56(8):1272--1284; hereafter, GM]. In the GM model, for a given lottery, agents form anticipated expected payoffs and the set of possible anticipations is assumed to be exogenously fixed. We propose sets of possible anticipations that are endogenously determined. This permits us to compare and evaluate in a consistent manner lotteries with different supports and to revisit the portfolio choice problem. We obtain new conclusions and interesting insights. Our extended model can rationalize a variety of empirically observed puzzles such as a positive demand for assets with negative expected returns, preference for skewed returns, and underdiversification of portfolios. This paper was accepted by Rakesh Sarin, decision analysis.

Keywords: endogenous beliefs; anticipatory feelings; disappointment; optimism; portfolio choice; skewness; underdiversification (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

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Working Paper: On Portfolio Choice with Savoring and Disappointment (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:inm:ormnsc:v:60:y:2014:i:3:p:796-804

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