Investment behavior under ambiguity : the case of pessimistic decision makers


Ludwig, Alexander ; Zimper, Alexander


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URL: http://ub-madoc.bib.uni-mannheim.de/2711
URN: urn:nbn:de:bsz:180-madoc-27116
Document Type: Working paper
Year of publication: 2004
Publication language: English
Institution: School of Law and Economics > Sonstige - Fakultät für Rechtswissenschaft und Volkswirtschaftslehre
MADOC publication series: Sonderforschungsbereich 504 > Rationalitätskonzepte, Entscheidungsverhalten und ökonomische Modellierung (Laufzeit 1997 - 2008)
Subject: 330 Economics
Classification: JEL: D81 G20 ,
Subject headings (SWD): Investition , Erwarteter Nutzen , Risikoverhalten , Entscheidung bei Unsicherheit
Keywords (English): Ambiguity , Choquet Expected Utility Theory , Bayesian Updating , Pessimism , Optimism
Abstract: We define pessimistic, respectively optimistic, investors as CEU (Choquet expected utility) decision makers who update their pessimistic, respectively optimistic, beliefs according to a pessimistic (Dempster-Shafer), respectively optimistic, update rule. This paper then demonstrates that, in contrast to optimistic investors, pessimistic investors may strictly prefer investing in an illiquid asset to investing in a liquid asset. Key to our result is the dynamic inconsistency of CEU decision making, implying that a CEU decision maker ex ante prefers a different strategy with respect to prematurely liquidating an uncertain long-term investment project than after learning her liquidity needs. Investing in an illiquid asset then serves as a commitment device guaranteeing an ex ante favorable outcome.
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Das Dokument wird vom Publikationsserver der Universitätsbibliothek Mannheim bereitgestellt.




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Ludwig, Alexander ; Zimper, Alexander (2004) Investment behavior under ambiguity : the case of pessimistic decision makers. Open Access [Working paper]
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