Some properties of subjective probabilities induced by optimal expectations

Hideki Iwaki; Yusuke Osaki

doi:10.1016/j.frl.2009.12.004

Some properties of subjective probabilities induced by optimal expectations

Hideki Iwaki, Yusuke Osaki^*

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

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.

Original language	English
Pages (from-to)	98-102
Number of pages	5
Journal	Finance Research Letters
Volume	7
Issue number	2
DOIs	https://doi.org/10.1016/j.frl.2009.12.004
Publication status	Published - 2010 Jun
Externally published	Yes

Keywords

Optimal expectation
Portfolio choice
Subjective probability

ASJC Scopus subject areas

Finance

Access to Document

10.1016/j.frl.2009.12.004

Cite this

@article{fdb0474a340f467db923e9e789bc014f,

title = "Some properties of subjective probabilities induced by optimal expectations",

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",

author = "Hideki Iwaki and Yusuke Osaki",

note = "Funding Information: We acknowledge the referee for the useful comments and suggestions. Osaki is grateful to financial support from Japan Society for the Promotion of Science (Kakenhi No. 21830146) and the Japan Securities Scholarship Foundation. ",

year = "2010",

month = jun,

doi = "10.1016/j.frl.2009.12.004",

language = "English",

volume = "7",

pages = "98--102",

journal = "Finance Research Letters",

issn = "1544-6123",

publisher = "Elsevier BV",

number = "2",

}

TY - JOUR

T1 - Some properties of subjective probabilities induced by optimal expectations

AU - Iwaki, Hideki

AU - Osaki, Yusuke

N1 - Funding Information: We acknowledge the referee for the useful comments and suggestions. Osaki is grateful to financial support from Japan Society for the Promotion of Science (Kakenhi No. 21830146) and the Japan Securities Scholarship Foundation.

PY - 2010/6

Y1 - 2010/6

N2 - 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.

AB - 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.

KW - Optimal expectation

KW - Portfolio choice

KW - Subjective probability

UR - http://www.scopus.com/inward/record.url?scp=77951621335&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=77951621335&partnerID=8YFLogxK

U2 - 10.1016/j.frl.2009.12.004

DO - 10.1016/j.frl.2009.12.004

M3 - Article

AN - SCOPUS:77951621335

SN - 1544-6123

VL - 7

SP - 98

EP - 102

JO - Finance Research Letters

JF - Finance Research Letters

IS - 2

ER -

Some properties of subjective probabilities induced by optimal expectations

Abstract

Keywords

ASJC Scopus subject areas

Access to Document

Other files and links

Fingerprint

Cite this