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On Portfolio Choice with Savoring and Disappointment

Author

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  • Elyès Jouini

    (PSL Research University, Université Paris-Dauphine, CEREMADE, 75775 Paris Cedex 16, France)

  • Paul Karehnke

    (PSL Research University, Université Paris-Dauphine, 75775 Paris Cedex 16, France; and Tilburg University, 5000 LE Tilburg, The Netherlands)

  • Clotilde Napp

    (CNRS and PSL Research University, Université Paris-Dauphine, 75775 Paris Cedex 16, France)

Abstract

We revisit the model proposed by Gollier and Muermann [Gollier C, Muermann A (2010) Optimal choice and beliefs with ex ante savoring and ex post disappointment. Management Sci. 56(8):1272--1284; hereafter, GM]. In the GM model, for a given lottery, agents form anticipated expected payoffs and the set of possible anticipations is assumed to be exogenously fixed. We propose sets of possible anticipations that are endogenously determined. This permits us 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 such as a positive demand for assets with negative expected returns, preference for skewed returns, and underdiversification of portfolios. This paper was accepted by Rakesh Sarin, decision analysis.

Suggested Citation

  • Elyès Jouini & Paul Karehnke & Clotilde Napp, 2014. "On Portfolio Choice with Savoring and Disappointment," Management Science, INFORMS, vol. 60(3), pages 796-804, March.
    • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:3:p:796-804
    DOI: 10.1287/mnsc.2013.1767
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    Cited by:

    1. Liang Guo, 2020. "Anticipatory Consumptions," Management Science, INFORMS, vol. 66(8), pages 3717-3734, August.
    2. Schneider, C.A.R. & Spalt, Oliver, 2016. "Conglomerate investment, skewness, and the CEO long shot bias," Other publications TiSEM 5d9321e2-35ea-40f9-9eae-4, Tilburg University, School of Economics and Management.
    3. Paul Karehnke & Frans de Roon, 2020. "Spanning Tests for Assets with Option-Like Payoffs: The Case of Hedge Funds," Management Science, INFORMS, vol. 66(12), pages 5969-5989, December.
    4. Elyès Jouini & Clotilde Napp, 2018. "The Impact of Health-Related Emotions on Belief Formation and Behavior," Theory and Decision, Springer, vol. 84(3), pages 405-427, May.
    5. Armouti-Hansen, Jesper & Kops, Christopher, 2024. "Managing anticipation and reference-dependent choice," Journal of Mathematical Economics, Elsevier, vol. 112(C).
    6. Jouini, Elyès & Karehnke, Paul & Napp, Clotilde, 2018. "Stereotypes, underconfidence and decision-making with an application to gender and math," Journal of Economic Behavior & Organization, Elsevier, vol. 148(C), pages 34-45.
    7. Pavlo Blavatskyy, 2018. "A second-generation disappointment aversion theory of decision making under risk," Theory and Decision, Springer, vol. 84(1), pages 29-60, January.
    8. Frans de Roon & Paul Karehnke, 2017. "A Simple Skewed Distribution with Asset Pricing Applications," Review of Finance, European Finance Association, vol. 21(6), pages 2169-2197.

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