Keynesian Utilities: Bulls and Bears

Anat Bracha and Donald J. Brown ()
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Donald J. Brown: Dept. of Economics, Yale University, https://economics.yale.edu/people/emeritus/donald-j-brown

No 1891, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: We propose Keynesian utilities as a new class of non-expected utility functions representing the preferences of investors for optimism, defined as the composition of the investor's preferences for risk and her preferences for ambiguity. The optimism or pessimism of Keynesian utilities is determined by empirical proxies for risk and ambiguity. Bulls and bears are defined respectively as optimistic and pessimistic investors. The resulting family of Afriat inequalities are necessary and sufficient for rationalizing the asset demands of bulls and bears with Keynesian utilities.

Keywords: Uncertainty; Optimism; Afriat inequalities (search for similar items in EconPapers)
JEL-codes: D81 G02 G11 (search for similar items in EconPapers)
Pages: 20 pages
Date: 2013-04
New Economics Papers: this item is included in nep-mic, nep-pke and nep-upt
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