Faculty of Economics and Business Administration Publications Database

Non-expected Utility, Saving and Portfolios

Hassapis, Christis
Volume: 111
Number: 468
Pages: 69 - 102
Month: January
ISSN-Print: 0013-0133
Link External Source: Online Version
Year: 2001
Abstract: Despite increased stockholding opportunities, standard expected-utility models overpredict household participation and stock holdings. It has been suggested that departures from expected utility could resolve both puzzles. We investigate three measurable departures: (i) Kreps-Porteus preferences, (ii) Yaari''s Dual Theory, and (iii) Quiggin''s Rank-dependent Utility. Improvements tend to occur in predicted portfolio composition rather than participation. They are limited under (i), questionable under (ii), and more sizeable under (iii). Contrary to priors in the literature, improvements under (iii) do not result from solutions at kinks of indifference curves. We conclude that stockholding puzzles are unlikely to be resolved through preferences alone.