|
on Utility Models and Prospect Theory |
| By: | Carolina Fugazza; Massimo Guidolin; Giovanna Nicodano |
| Abstract: | Recent research [e.g., DeMiguel, Garlappi and Uppal, (2009), Rev. Fin. Studies] has cast doubts on the out-of-sample performance of optimizing portfolio strategies relative to naive, equally weighted ones. However, existing results concern the simple case in which an investor has a one-month horizon and meanvariance preferences. In this paper, we examine whether their result holds for longer investment horizons, when the asset menu includes bonds and real estate beyond stocks and cash, and when the investor is characterized by constant relative risk aversion preferences which are not locally mean-variance for long horizons. Our experiments indicates that power utility investors with horizons of one year and longer would have on average benefited, ex-post, from an optimizing strategy that exploits simple linear predictability in asset returns over the period January 1995 - December 2007. This result is insensitive to the degree of risk aversion, to the number of predictors being included in the forecasting model, and to the deduction of transaction costs from measured portfolio performance. |
| Keywords: | Econometric models ; Asset pricing ; Rate of return |
| Date: | 2010 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2010-003&r=upt |
| By: | Mitesh Kataria (Max Planck Institute of Economics, Strategic Interaction Group, Jena); Jason F. Shogren (University of Wyoming, Department of Economics and Finance, Laramie) |
| Abstract: | How does a choice experiment (CE) model derived under standard preference axioms perform for respondents with incomplete preferences? Using simulated data, we show how such miss-specification results in unnecessary noise and bias in welfare estimates, and can be avoided. |
| Keywords: | Choice experiment, Ordered Logit, Bias, Preference Axioms |
| JEL: | D61 Q51 |
| Date: | 2010–01–15 |
| URL: | http://d.repec.org/n?u=RePEc:jrp:jrpwrp:2010-003&r=upt |
| By: | Massimiliano Landi; Domenico Colucci (Singapore Management University) |
| Abstract: | We consider a signalling game in which a population of receivers decide on the outcome by majority rule, sender and receivers have conflicting interests, and there is uncertainty about both players’ types. We model players rationality along the lines of recent findings in behavioral game theory. We characterize the structure of the equilibria in the reduced game so obtained. We find that all pure strategy equilibria are consistent with successful attempts to mislead the receivers, and relate them to the message bin Laden sent on the eve of the 2004 US Presidential elections. The same result holds if we allow for some uncertainty about the sign of the correlation between the sender’s and the receivers’ payoffs. |
| Keywords: | bin Laden, sender receiver games, US Presidential elections, signalling game, payoffs |
| JEL: | C70 D72 D70 |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:eab:develo:1547&r=upt |
| By: | Dean E. Spears (Princeton University) |
| Abstract: | How might bounded rationality shape decisions to spend? A field experiment verifies a theory of bounded rationality as deliberation costs that can explain findings from previous experiments on pricing in developing countries. The model predicts that (1) eliminating deliberation costs will increase purchasing at a higher price without impacting behavior at a lower price, (2) bounded rationality has certain greater effects on poorer people, and (3) deliberation costs can suppress screening by prices. Each prediction is confirmed by an experiment that sold soap in rural Indian villages. The experiment interacted assignment to different subsidized prices with a treatment that eliminated marginal deliberation costs. The results suggest implications of bounded rationality for theory and social policy. |
| Keywords: | Rationality, price, India |
| JEL: | C01 D19 E30 H31 C93 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:pri:cepsud:1199&r=upt |
| By: | Giuseppe Attanasi; Aldo Montesano |
| Date: | 2010–01 |
| URL: | http://d.repec.org/n?u=RePEc:ler:wpaper:10.01.307&r=upt |