On Portfolio Choice with Savoring and Disappointment

Elyès Jouini (), Paul Karehnke and Clotilde Napp

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Abstract: We revisit the model proposed by Gollier and Muermann (see Gollier, C. and A. Muermann, 2010, Optimal choice and beliefs with exante savoring and ex-post disappointment, Management Sci., 56, 1272-1284, hereafter GM). In GM, for a given lottery, agents form anticipated expected payoffs and the set of possible anticipations is assumed to be exogenously fixed. We rather propose sets of possible anticipations which are endogenously determined. This permits 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 like a positive demand for assets with negative expected returns, preference for skewed returns and under-diversification of portfolios.

Keywords: endogenous beliefs; anticipatory feelings; disappointment; optimism; portfolio choice; skewness; under-diversification (search for similar items in EconPapers)
Date: 2013-10-07
New Economics Papers: this item is included in nep-mic
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-00927267v1
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Published in Management Science, 2013, pp.000-000. ⟨10.1287/mnsc.2013.1767⟩

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Journal Article: On Portfolio Choice with Savoring and Disappointment (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00927267

DOI: 10.1287/mnsc.2013.1767

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