Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5069870 | Finance Research Letters | 2010 | 5 Pages |
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.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Hideki Iwaki, Yusuke Osaki,